Investor sentiment during the financial crisis of 2008 : the case of mutual funds

Abstract

Investor Sentiment is an important part of Behavioral Finance, it shows how the investors react to the market. The Financial Crisis that started in 2008 has been the main concern of financial analysts, regulators and economists. In this paper, we are examining the correlation between selected investor sentiment indicators and mutual funds performance, during and after the Financial Crisis in 2008, and whether this relationship is affected by the geographical focus of the fund. Different studies have brought up the correlation between Investor Sentiment and Mutual Funds. Most papers revealed a positive correlation while others proved the lack of a significant relationship. Based on an event study methodology, the findings showed that there is a positive correlation between Investor Sentiment and excess returns of Mutual Funds. This relation was also affected by the geographical base of the mutual fund, whether it is focused in the US or not.