Downside risk
what the consumer sentiment index reveals
DOI:
https://doi.org/10.61190/fsr.v23i1.3185Keywords:
Long-horizon regression, Asymmetric response, Downside risk, Consumer sentimentAbstract
This article examines the ability of consumer sentiment for different age groups to forecast short-term as well as long-term equity returns. Using a long-horizon asymmetric response regression format, we show that negative changes in sentiment have a greater influence on stock returns than positive changes in sentiment. Our findings are supportive of the prospect theory. However, we observe that younger individuals appear to be less risk-averse than older individuals. We provide evidence that reminds individual investors and financial planners that risk is an important consider- ation when investing, and that demographic characteristics matter when determining appropriate investing approaches and risk tolerance.
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