Source: University of Canterbury
11 March 2020
University of Canterbury’s (UC) Professor Jedrzej Bialkowski and Dr Moritz Wagner have partnered with The New Zealand Shareholders Association to provide a retail investor sentiment index to measure sentiment of the New Zealand Stock Market, New Zealand Sectors and International Markets.
The sentiment index is the brain-child of Professor Bialkowski, Head of Department Economics and Finance, who worked with Dr Wagner, also from UC’s Business School, and the New Zealand Shareholders Association to turn the idea into a reality.
The index involves a weekly survey that tracks the sentiment of New Zealand’s retail investors’ short-term future (next six months) on the market. Sentiment is captured as being bullish (expecting increasing prices), bearish (expecting decreasing prices) or neutral (expecting no change) across eight sectors – energy, health care, information technology, primary sector, industrials, consumer discretionary, financial, and real estate.
Dr Wagner says the impact and importance of such an index is paramount.
“The Sentiment Index contributes to the understanding of investor behaviour and the overall market, and puts New Zealand on the same level as other countries in terms of market data. The index gauges overall changes in price and value perceptions, and can signal infliction points and provide early signs of bubbles and associated corrections and ultimately helps to make better-informed investment decisions,” he says.
“Stock market history is full of events characterised by either extreme levels or dramatic changes in stock prices. Patterns that are difficult to reconcile with standard asset pricing models based on the assumption that prices are determined by rational investors. Yet, investors are not always rational.
“Market sentiment refers to the overall attitude of investors as a digest of all market expectations. Nowadays the question is no longer, whether sentiment matters, but rather how we can measure it and the associated effects on stock returns. Arguably, survey-based approaches provide the most direct estimate of sentiment,” says Dr Wagner.
The survey has been designed and methodology developed in close collaboration with the New Zealand Shareholder Association to transform the data into a quantitative index. An existing online tool is being used to conduct the weekly survey that ensures ease of use and protection of respondent’s privacy. Data collection and evaluation of the survey is being done by UC academic staff.
Tony Mitchell, Chair of NZSA said, “This collaboration between NZSA and UC Business School fits well with our mission to be the voice of investors and will contribute to the understanding of investor behaviour and the overall market.”