Do Investors Emotions Contribute to Equity Market Anomalies? Addressing the Empirical Gap using Machine Learning Models
Description
The study explores the relationship between investor emotions and stock market anomalies in the Indian financial landscape, examining both regular and irregular market occurrences. By utilizing mixed methods, the study uses an LSTM model for anomaly detection and sentiment analysis from Twitter data. It also includes regression analysis to measure the influence of public sentiment on stock prices. The results suggest that investor emotions play a significant role in market anomalies during extraordinary events like the 2008 financial crisis and the demonetization initiative in 2016, but have a lesser effect during expected, repetitive events. The study stands out for its empirical investigation of emotional finance theory to uncover the reasons behind stock market anomalies in India, an area that has not been thoroughly examined before. This research has two main implications: it questions the Efficient Market Hypothesis and provides suggestions for regulatory measures and investment strategies that consider emotional influences on market behavior.