Understanding the irrational sentiments of the market participants is necessary for making good investment decisions. Despite the recent academic effort to examine the role of investors’ sentiments in market dynamics, there is a lack of consensus in delineating the structural aspect of market sentiments. This research is an attempt to address this gap. The study explores the role of irrational investors’ sentiments in determining stock market volatility. By employing monthly data on market-related implicit indices, we constructed an irrational sentiment index using principal component analysis. This sentiment index was modelled in the GARCH and Granger causality framework to analyse its contribution to volatility. The results showed that irrational sentiment significantly causes excess market volatility. Moreover, the study indicates that the asymmetrical aspects of an inefficient market contribute to excess volatility and returns. The findings are crucial for retail investors as well as portfolio managers seeking to make an optimum portfolio to maximise profits.

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对投资者情绪和股市波动的实证检验：来自印度的证据

了解市场参与者的非理性情绪对于做出良好的投资决策是必要的。尽管最近学术界努力研究投资者情绪在市场动态中的作用，但在描述市场情绪的结构方面仍缺乏共识。本研究试图弥补这一差距。该研究探讨了非理性投资者情绪在决定股市波动中的作用。通过使用与市场相关的隐性指数的月度数据，我们使用主成分分析构建了非理性情绪指数。该情绪指数在 GARCH 和 Granger 因果关系框架中建模，以分析其对波动性的贡献。结果表明，非理性情绪显着导致市场过度波动。而且，研究表明，低效市场的不对称性会导致过度波动和回报。这些发现对于散户投资者以及寻求制定最佳投资组合以实现利润最大化的投资组合经理来说至关重要。