The effects of asymmetric investor sentiment on the liquidity of capital markets

Behavioral finance asserts that investror sentiment is a factor that can explain the changes of liquidity and that there is a theoretically testified relationship between these two variables by investigating what factors affect the changes of liquidity. The current studya ims to explain the effects of investor sentiment on the liquidity of Turkish equity markets. The data were based on Istanbul Stock Exchange and the Capital Markets Board of Turkey between Sep 9, 2009 when the fluctuations began to end after the 2008 global crisis and Apr 28, 2017 in order to prove that investor sentiment exits, to show that it has an asymmetric effect on the liquidity of stocks on the BIST100, and to investigate its explanatory effects on liquidity. It is estimated that the simple linear regression models are those fit for ensuring regression assumptions selected from a variety of alternative models on the Eviews 9.5 software. The findings indicate that investor sentiment has an effect on the liquidity of stocks and that there is a positive relationship between them. They also show that it has an asymmetric effect on the liquidity of stocks and that the liquidity of stocks is affected more in periods of investor sentiment decreasing as compared to those of investor sentiment growing. They are in agreement with related literture and support the theory of behavioral finance. Portfolios with a depth and high liquidity are affected less by investor sentiment. On the other hand, they suggest that the changes in the liquidity of stocks cannot be explained by investor sentiment alone and there can be other factors affecting liquidity, too.