HEC-Ecole de gestion de l'Université de Liège
HEC-Ecole de gestion de l'Université de Liège

Analysis of sentiment indicators in order to predict the evolution of European market's indexes

Heusicom, Nicolas ULiège
Promotor(s) : Bodson, Laurent ULiège
Date of defense : 23-Jun-2016/28-Jun-2016 • Permalink :
Title : Analysis of sentiment indicators in order to predict the evolution of European market's indexes
Translated title : [fr] Analyse d'indicateurs de sentiment dans le but de prédire l'évolution d'indexes du marché Européen
Author : Heusicom, Nicolas ULiège
Date of defense  : 23-Jun-2016/28-Jun-2016
Advisor(s) : Bodson, Laurent ULiège
Committee's member(s) : Muller, Aline ULiège
Fays, Boris ULiège
Language : English
Number of pages : 70
Keywords : [en] Behavioral finance
[en] Investor sentiment
[en] European market
[en] forecasting
[en] stock returns
Discipline(s) : Business & economic sciences > Finance
Institution(s) : Université de Liège, Liège, Belgique
Degree: Master en ingénieur de gestion, à finalité spécialisée en Financial Engineering
Faculty: Master thesis of the HEC-Ecole de gestion de l'Université de Liège


[en] Behavioral finance has been gaining ground since the 1990s, and the numerous financial crises of recent years have played a crucial role in this increase. Persistent mispricing has been observed, and has caused doubt regarding the efficiency of financial markets. Investors’ irrational behaviors are now considered to be directly related to the evolution of stock prices. Therefore, investor sentiment cannot be ignored when forecasting future stock prices.
Above all else, this paper rests on the two premises of behavioral finance: investors behave irrationally, and markets are inefficient. I propose an empirical analysis based on the notion of ‘investor sentiment’.
I use various measures, such as consumer confidence, economic sentiment, and five market-based proxies, to quantify the European investor sentiment. I examine the predictability of these measures of investor sentiment on three indexes of the European market: the S&P Europe 350, the EURO STOXX 50, and the MSCI Europe.
It is found that investor sentiment, as represented by consumer confidence indexes, is a good predictor of future returns in the European market, as far as it is reflected by the MSCI Europe Index. More specifically, low levels of investor sentiment forecast high returns in the following months; and vice versa. I show that this impact decreases as the forecasting horizon increases until it is very low after 12 months, predicting that the effect of sentiment vanishes in the long-term.
In addition, stocks that are hard to value and difficult to arbitrage, as represented by small capitalization and low operating profit, are more affected than safety stocks by past levels of investor sentiment. More specifically, the ‘size’ characteristic plays a prominent role when evaluating the effect of investor sentiment on future returns.
Finally, I find no significant difference between the effect of investor sentiment on value and growth stocks.



Access Nicolas_HEUSICOM_thesis_final_matheo.pdf
Size: 3.44 MB
Format: Adobe PDF


  • Heusicom, Nicolas ULiège Université de Liège > Master ingé. gest., fin. spéc. fin. engin. (ex 2e ma.)


Committee's member(s)

  • Total number of views 54
  • Total number of downloads 35

All documents available on MatheO are protected by copyright and subject to the usual rules for fair use.
The University of Liège does not guarantee the scientific quality of these students' works or the accuracy of all the information they contain.