Theses and Dissertations - UTB/UTPA

Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Dr. Gökçe A. Soydemir

Second Advisor

Dr. Damian Damianov

Third Advisor

Dr. Jan Smolarski


This dissertation consists of two essays on how investor sentiments affect the returns and volatility of the Brazilian stock market. Both essays share a similar methodological approach. The first one analyzes the effect of investor sentiments on the returns and volatility of the Brazilian stock market using a model that accounts for fundamentals (rational) and noise components (irrational) of investor sentiments on the Sao Paulo leading index Bovespa. This research finds a statistically significant positive (negative) impact of rational (irrational) sentiments on market returns. Moreover, there are statistically significant impacts of irrational components of the sentiment indexes on Bovespa volatility with immediate positive responses of the stock market volatility to irrational sentiments of investors but negative responses of stock market volatility to rational sentiments of investors corrected by positive responses in the upcoming periods. The results support the view that irrational sentiments of investors may be strong enough to impact the stock market returns and volatility. In addition we document an asymmetric impact of changes in sentiments on market returns and volatility.

In the second essay we focus on how rational and irrational sentiments of the U.S. individual and institutional investors affect stock market returns and volatility of an emerging market such as Brazil. In line with previous research for developed markets, the impact of rational sentiments on stock market returns is found to be greater than that of irrational sentiments. There are immediate positive responses of Bovespa market returns to rational sentiments but insignificant responses to irrational sentiments while positive effects of past stock market returns on irrational sentiments but not on rational sentiments. There are negative responses of Bovespa market volatility to rational sentiments and no significant effect to irrational sentiments. Overall, these results support the economic fundamentals based arguments of stock returns providing limited evidence in favor of U.S. irrational sentiments impacting Bovespa returns and volatility.


Copyright 2010 Pablo J. Calafiore. All Rights Reserved.

Granting Institution

University of Texas-Pan American