Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

Investor Sentiment and Stock Return in the Nigerian Capital Market

Rasheed Ajibola BUSAR?, Dele Ayo AWOTUNDUN, Abolaji Daniel AN?FOWOSE

Abstract

This study examines investor sentiment and stock returns in Nigerian capital market, covering period 30/04/2019 to 02/06/2025, using daily secondary time series data with focus on impact of sentiment factor on stock returns and identifying most important sentiment factor that could influence stock returns. The study adopts Autoregressive Distributed Lag (ARDL) estimation technique to analyze the dynamic interactions between investor sentiment and stock performance. The study findings revealed exchange rate (EXR) and volatility index (VIX) as the most important sentiment factors, and both are statistically significant with positive coefficients to influence stock returns. Also, the study revealed stock returns and volatility have mean-reverting behaviour, which implies that irrespective of the market and economic conditions, stock returns and volatility can correct its mispricing. The result also showed the presence of long and short run effects, with EXR and VIX showing a positive influence on stock returns.

Keywords

Investor SentimentStock ReturnCapital MarketFrontier MarketEmerging Market

References

Abdullahi, B. M., Oyedeko, Y. O., Uthman, F. Z., and Dangana, A. A. (2022). Investors’ sentiment and momentum strategy in Nigerian stock market. Fuoye Journal of Finance and Contemporary Issues, 3(1). Aftab, M., Rehman, I. U., and Anifowose, A. D. (2016). Disposition Effect and Asset Pricing in an Emerging Stock Market. International Journal of Economics and Empirical Research, 4(6), 320-332. Ajibola, J. O., Oni, T. O., and Awolaja, O. G. (2025). Computing the Investor Sentiment Index for Nigeria: Methodology and Applications. African Economic and Management Review, 5(1), 1-9 Alajekwu, U.B, Obialor, M.C And Okoro, M.C. (2017). Effect of investor sentiment on future returns in the nigerian stock market. Annals of Spiru Haret University. Economic Series, 17(2), 75-102. Ayinuola, T. F., and Adetiloye, K. A. (2023). Investigating the Nexus Between Investor Sentiment and Stock Return Volatility in Nigeria. Educational Research (IJMCER), 5(3), 160-173. Baker, M., and Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. The Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x Baker, M., and Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–151. https://doi.org/10.1257/jep.21.2.129 Baker, M., Jeffrey, W., and Yu, Y. (2012). Global, local, and contagious investor sentiment. Journal of Financial Economics, 104, 272–287. Barberis, N., and Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053-1128. Barberis, N., Shleifer, A., and Vishny, R. (1998). A model of investor sentiment. Journal of Financial Economics, 49(3), 307–343. https://doi.org/10.1016/S0304-405X(98)00027-0 Bouteska, A., Sharif, T. and Abedin, M. Z. (2023). Does investor sentiment create value for asset pricing? An empirical investigation of the KOSPI listed firms. International Journal of Finance & Economics. https://doi.org/10.1002/ijfe.2836 Brown, G. W., and Cliff, M. T. (2005). Investor sentiment and asset valuation. The journal of Business, 78(2), 405-440. Busari, R. A., Awotundun, D. A., and Anifowose, A. D. (2025). Stock portfolio and stock return in Nigeria capital market. Journal of Management, Economics, and Industrial Organiza8on, 9(1), 18-30. De Long, J. B., Shleifer, A., Summers, L. H., and Waldmann, R. J. (1990). Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703–738. Emmanuel, T. A., and Ahmed, A. T. (2020). Effect Of Investors’ Sentiment on Stock Market Returns In Nigeria (1990-2017). International Journal of Research in Commerce and Management Studies (ISSN: 2582-2292), 2(1), 21-43. Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), 383–417. Fonou-Dombeu, N. C., Nomlala, B. C., and Nyide, C. J. (2024). Investigating the Effect of Investor Sentiment on Stock Return Sensitivity To Fundamental Factors: Case Of JSE Listed Companies. Cogent Business & Management, 11(1), 2353846. Haritha, P. H., and Rishad, A. (2020). An Empirical Examination Of Investor Sentiment and Stock Market Volatility: Evidence From India. Financial Innovation, 6(1), 1–15. https://doi.org/10.1186/s40854-020-00198-x John, S. A., Abdullahi, I. B., And Abdulkadri, M. (2022). Investors’ sentiment And Stock Return: Evidence From The Nigerian Stock Market. Ilorin Journal of Finance, 6(1), 42-51. Kim, K., Ryu, D., and Yang, H. (2019). Investor Sentiment, Stock Returns, and Analyst Recommendation Changes: The KOSPI Stock Market. Investment Analysts Journal, 48(2), 89–101. https://doi.org/10.1080/10293523.2019.1614758 Lemmon, M., and Portniaguina, E. (2006). Consumer Confidence and Asset Prices: Some Empirical Evidence. The Review of Financial Studies, 19(4), 1499–1529. Nabosu, S. S., M’ithiria, E. N., and Wepukhulu, J. M. (2022). Investor Sentiment and Stock Market Return of Non-Financial Firms Listed on the Nairobi Securities Exchange. J. Finance Account., 6(3), 65-81. Nawar, N (2024). The Effect of Investor Sentiment on Stock Returns: Evidence from a Frontier Market. Journal of Financial Markets and Governance, 3(2), 23-46. Nguyen, H. H., Ngo, V. M., Pham, L. M., and Van Nguyen, P. (2025). Investor Sentiment And Market Returns: A multi-horizon analysis. Research in International Business and Finance, 74, 102701. Njogo, B. O.,Jaiyeoba, A.O, and Mabinuori, O. (2020). Investors’ Sentiment And Stock Trading in the Nigerian Capital Market. Caleb International Journal of Development Studies 3(2), 235-247 Nnoje, A. I., Okonkwo, J. J., and Anachedo, C. K. (2021). Investors’ sentiments, Market Dynamics And Stock Market Returns In Nigeria. Journal of Contemporary Issues in Accounting, 1(1), 56-73. Nwanna, I. O., and Olayiwola, W. K. (2020). Investor sentiment and stock market performance in Nigeria: Evidence from vector autoregression. International Journal of Economics and Financial Issues, 10(3), 220–226. Okonkwo, O., and Nwanna, I. (2019). Stock market reactions to macroeconomic announcements in Nigeria. African Development Review, 31(4), 567–580. Oni, O. T., Ajibola, O. J., and Awolaja, O. G. (2025). Is there any connectedness Between Investor Sentiment and Nigeria Stock Market Performance?. Applied Journal of Economics, Management and Social Sciences, 6(1), 34-45 Osabuohien-Irabor, O. (2021). Investors’ Attention: Does It Impact The Nigerian Stock Market Activities?. Journal of Economics and Development, 23(1), 59-76. Prasad, S., Mohapatra, S., Rahman, M. R., and Puniyani, A. (2022). Investor sentiment index: a systematic review. International Journal of Financial Studies, 11(1), 6. Rembokowati, N. A. (2025). How Investor Sentiment and Trading Behavior Affect Stocks Return. Coopetition: Jurnal Ilmiah Manajemen, 16(1), 1-13. Ryu, D., Ryu, D., and Yang, H. (2018). Investor sentiment and firm characteristics: Domestic evidence. Asian review of financial research, 31(1), 1-38. Sun, Y., Zeng, X., Zhou, S., Zhao, H., Thomas, P., and Hu, H. (2021). What Investors say is what the Market Says: Measuring China’s Real Investor Sentiment. Personal and Ubiquitous Computing, 25, 587-599. Xia, Q. (2022, December). Advances in Research on Investor Sentiment and Stock Returns. In 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022), 791-795. Zhang, C. (2008). Defining, Modeling, And Measuring Investor Sentiment. University of California, Berkeley, Department of Economics. Zhang, Chen, Liu, and Liu, (2018). The Impact Of Institutional Investors On Stock Returns - A Study Based on Asset Pricing Model with Incomplete Information. Monthly Review of Finance and Accounting, 2018(22): 163-169. Zhou, G. (2018). Measuring Investor Sentiment. Annual Review of Financial Economics, 10, 239– https://doi.org/10.1146/annurev-financial-110217-022725 Zubairu, M. (2015). The Influence of Investors Sentiment On Stock Market Returns in Nigeria. Abuja Journal of Business and Management, 1(1), 11-29.

More Articles from INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT

Bridging Legal, Financial, and Data Governance in Enterprise AI: Emerging Trends

Author: Funmilayo Ashore-Onisemo, Ebehiremen Faith Iziduh, Uchechi Mary-Linda Unamma, Ifeanyichukwu Jeffrey Okwesa

Macroeconomic Policies and Economic Stability in Nigeria

Author: Abel-Tariah Emmanuel Onate, Okon, Ekanem Nsikhe, Nwenyi Francis Onwe

Determinants of Bank Liquidity in Nigeria

Author: Nelson Johnny Ebifemo-ere Stephen