Time-Varying Effect of Macroeconomic Factors on Investor Sentiment: Examining the Role of Sanction, JCPOA and Covid-19

Abstract

Investor sentiment plays an important role in financial markets and it is important to study the factors affecting it. Therefore, this paper, using the TVP-SVAR-SV method, has studied the time-varying effect of macroeconomic factors on investor sentiment in TSE during 2004-2 to 2022-4 seasonally. The findings showed that the impact of macroeconomic factor shocks on investors' sentiment is negative in the short term. After 2014-2, the exchange rate has had a positive effect on investor sentiment in the medium term. GDP and inflation also had a positive effect in the medium term. The fluctuation of investor reaction to the oil price shock in the short term is more than other macroeconomic factors and the biggest reaction was related to the drop in oil price in 2008. Compared to other macroeconomic factors, liquidity has had the strongest impact on investor sentiment in the short, medium and long term. The study of investor sentiment reaction to the shocks of macroeconomic factors in the three events of sanctions in 2012, the JCPOA and the coexistence of Covid-19 and the withdrawal of the United States from the JCPOA shows that the sentiment response to the shock of each of the factors in all three events was similar and no factor has had a lasting positive or negative effect on investor sentiment. In the first (third) event, compared to the other two events, the sentiment reaction to the shock of macro variables (except inflation) was stronger (weaker). The findings showed that the use of static approaches may lead to misleading results regarding the effect of macroeconomic factors on investor sentiment. In addition, the strong effectiveness of the investor's sentiment of self compared to the macroeconomic variables, explains the investors' behavior better.

Keywords

• macroeconomic factors
• investor sentiment
• sanction
• covid-19
• tvp-svar-sv