Investor Sentiment and Stock Return in the Nigerian Capital Market

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.