The effects of investor sentiment on sector indices: An application in Borsa Istanbul

Investors' speed of access to information with increasing technological development affects their investment decisions, and this has an impact on the financial markets as well. In this study, it is aimed to examine the relations between investor sentiment and sector indices. In this direction, the relations between investor sentiment and expectations and the stock market have been tried to be explained by various econometric analysis methods by considering the rational expectations theory, efficient markets hypothesis and behavioral finance theory, which are the main subjects of finance. Within the scope of the study, monthly price data for the 2010-2022 period regarding the BIST Industry Index (XUSIN), BIST Service Index (XUHIZ), BIST Financial Index (XUMAL) and BIST Technology Index (XUTEK), which constitute an important part of the Turkish economy, are used to represent the share markets. Consumer Confidence Index (CCI), Bısiness Confidence Index (BCI), Total Investor Risk Appetite Index (RISE) and Volatility (Fear) Index (VIX) are used to represent investor sentiment and expectations. In the study, the relationship between BIST sector indices and investor sentiment indicators were examined by creating a total of 16 models. The relationship between investor sentiment and sector indices were investigated by applying cointegration, causality, impulse-response and variance decomposition analyzes. As a result of the cointegration analysis, it has been determined that the sector indices other than the BIST Technology index act cointegrated with various investor sentiment indicators. As a result of the causality tests, a one-way causality relationship was detected from XUSIN, XUMAL and XUTEK to BCI, while a reciprocal causality relationship was detected between XUHIZ and BCI. While no causal relationship could be detected between XUSIN, XUHIZ and XUTEK and CCI, a reciprocal causality relationship was detected between XUMAL and CCI. While a mutual causality relationship was detected between XUSIN and XUMAL and RISE, a one-way causality relationship was detected between XUHIZ and RISE. While a reciprocal causality relationship was detected between XUHIZ and VIX, one-way causality relationships from VIX to XUSIN and from XUTEK to VIX were determined. As a result of impulse-response analysis and variance decomposition analysis, findings supporting the results of causality tests were obtained. Keywords: Efficient Markets Hypothesis, Behavioral Finance, Investor Sentiment, BIST Sector Indices