Impact of Emotions on Stock Market Volatility in Case of Pakistan’s Market

Abstract

This study aims to investigate the impact of investor’s emotions on stock market volatility in Pakistani market. This study uses investor’s emotions (represented by average daily turnover in Karachi stock exchange, equity/debt ratio, dividend premium, closed end fund discount, first day returns on initial public offerings) as independent variable. Whereas, stock market volatility is used as the dependent variable to investigate the relationship between investor’s emotions and stock market volatility in Pakistan. To assess the relationship, quantitative research method is used. Monthly data is collected from the period of 2009 – 2019 (11 years) with the help of secondary sources (exchange commission of Pakistan, PSX website, and State bank of Pakistan website). However, statistical tests (such as descriptive statistics, correlation and regression) have been used primarily to identify the relationship between variables of this study. Results were drawn through statistical tests with the help of Views software. Based on the findings, regression analysis has proved that investor’s emotions (average daily turnover in Karachi stock exchange, equity/debt ratio, dividend premium, closed end fund discount, first day returns on initial public offerings) have a significant impact on stock market volatility (dependent variable) in Pakistan. Conclusively, regression analysis has proved that change in investor’s emotions brings a definite change in stock market volatility in Pakistan.