Investor Sentiment and Stock Return in the Nigerian Capital Market
Rasheed Ajibola BUSAR?, Dele Ayo AWOTUNDUN, Abolaji Daniel AN?FOWOSE
Abstract
This study examines investor sentiment and stock returns in Nigerian capital market, covering period 30/04/2019 to 02/06/2025, using daily secondary time series data with focus on impact of sentiment factor on stock returns and identifying most important sentiment factor that could influence stock returns. The study adopts Autoregressive Distributed Lag (ARDL) estimation technique to analyze the dynamic interactions between investor sentiment and stock performance. The study findings revealed exchange rate (EXR) and volatility index (VIX) as the most important sentiment factors, and both are statistically significant with positive coefficients to influence stock returns. Also, the study revealed stock returns and volatility have mean-reverting behaviour, which implies that irrespective of the market and economic conditions, stock returns and volatility can correct its mispricing. The result also showed the presence of long and short run effects, with EXR and VIX showing a positive influence on stock returns.
Keywords
Investor Sentiment
Stock Return
Capital Market
Frontier Market
Emerging Market
References
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and momentum strategy in Nigerian stock market. Fuoye Journal of Finance and
Contemporary Issues, 3(1).
Aftab, M., Rehman, I. U., and Anifowose, A. D. (2016). Disposition Effect and Asset Pricing in
an Emerging Stock Market. International Journal of Economics and Empirical
Research, 4(6), 320-332.
Ajibola, J. O., Oni, T. O., and Awolaja, O. G. (2025). Computing the Investor Sentiment Index for
Nigeria: Methodology and Applications. African Economic and Management Review, 5(1),
1-9
Alajekwu, U.B, Obialor, M.C And Okoro, M.C. (2017). Effect of investor sentiment on future
returns in the nigerian stock market. Annals of Spiru Haret University. Economic
Series, 17(2), 75-102.
Ayinuola, T. F., and Adetiloye, K. A. (2023). Investigating the Nexus Between Investor Sentiment
and Stock Return Volatility in Nigeria. Educational Research (IJMCER), 5(3), 160-173.
Baker, M., and Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. The
Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x
Baker, M., and Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic
Perspectives, 21(2), 129–151. https://doi.org/10.1257/jep.21.2.129
Baker,
M., Jeffrey,
W.,
and Yu,
Y. (2012). Global,
local,
and
contagious
investor
sentiment. Journal of Financial Economics, 104, 272–287.
Barberis, N., and Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics
of Finance, 1, 1053-1128.
Barberis, N., Shleifer, A., and Vishny, R. (1998). A model of investor sentiment. Journal of
Financial Economics, 49(3), 307–343. https://doi.org/10.1016/S0304-405X(98)00027-0
Bouteska, A., Sharif, T. and Abedin, M. Z. (2023). Does investor sentiment create value for asset
pricing? An empirical investigation of the KOSPI listed firms. International Journal of
Finance & Economics. https://doi.org/10.1002/ijfe.2836
Brown, G. W., and Cliff, M. T. (2005). Investor sentiment and asset valuation. The journal of
Business, 78(2), 405-440.
Busari, R. A., Awotundun, D. A., and Anifowose, A. D. (2025). Stock portfolio and stock return
in Nigeria capital market. Journal of Management, Economics, and Industrial
Organiza8on, 9(1), 18-30.
De Long, J. B., Shleifer, A., Summers, L. H., and Waldmann, R. J. (1990). Noise trader risk in
financial markets. Journal of Political Economy, 98(4), 703–738.
Emmanuel, T. A., and Ahmed, A. T. (2020). Effect Of Investors’ Sentiment on Stock Market
Returns In Nigeria (1990-2017). International Journal of Research in Commerce and
Management Studies (ISSN: 2582-2292), 2(1), 21-43.
Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The
Journal of Finance, 25(2), 383–417.
Fonou-Dombeu, N. C., Nomlala, B. C., and Nyide, C. J. (2024). Investigating the Effect of Investor
Sentiment on Stock Return Sensitivity To Fundamental Factors: Case Of JSE Listed
Companies. Cogent Business & Management, 11(1), 2353846.
Haritha, P. H., and Rishad, A. (2020). An Empirical Examination Of Investor Sentiment and Stock
Market Volatility: Evidence From India. Financial Innovation, 6(1), 1–15.
https://doi.org/10.1186/s40854-020-00198-x
John, S. A., Abdullahi, I. B., And Abdulkadri, M. (2022). Investors’ sentiment And Stock Return:
Evidence From The Nigerian Stock Market. Ilorin Journal of Finance, 6(1), 42-51.
Kim, K., Ryu, D., and Yang, H. (2019). Investor Sentiment, Stock Returns, and Analyst
Recommendation Changes: The KOSPI Stock Market. Investment Analysts Journal, 48(2),
89–101. https://doi.org/10.1080/10293523.2019.1614758
Lemmon, M., and Portniaguina, E. (2006). Consumer Confidence and Asset Prices: Some
Empirical Evidence. The Review of Financial Studies, 19(4), 1499–1529.
Nabosu, S. S., M’ithiria, E. N., and Wepukhulu, J. M. (2022). Investor Sentiment and Stock Market
Return of Non-Financial Firms Listed on the Nairobi Securities Exchange. J. Finance
Account., 6(3), 65-81.
Nawar, N (2024). The Effect of Investor Sentiment on Stock Returns: Evidence from a Frontier
Market. Journal of Financial Markets and Governance, 3(2), 23-46.
Nguyen, H. H., Ngo, V. M., Pham, L. M., and Van Nguyen, P. (2025). Investor Sentiment And
Market Returns: A multi-horizon analysis. Research in International Business and
Finance, 74, 102701.
Njogo, B. O.,Jaiyeoba, A.O, and Mabinuori, O. (2020). Investors’ Sentiment And Stock Trading
in the Nigerian Capital Market. Caleb International Journal of Development Studies
3(2), 235-247
Nnoje, A. I., Okonkwo, J. J., and Anachedo, C. K. (2021). Investors’ sentiments, Market Dynamics
And Stock Market Returns In Nigeria. Journal of Contemporary Issues in
Accounting, 1(1), 56-73.
Nwanna, I. O., and Olayiwola, W. K. (2020). Investor sentiment and stock market performance in
Nigeria: Evidence from vector autoregression. International Journal of Economics and
Financial Issues, 10(3), 220–226.
Okonkwo, O., and Nwanna, I. (2019). Stock market reactions to macroeconomic announcements
in Nigeria. African Development Review, 31(4), 567–580.
Oni, O. T., Ajibola, O. J., and Awolaja, O. G. (2025). Is there any connectedness Between Investor
Sentiment and Nigeria Stock Market Performance?. Applied Journal of Economics,
Management and Social Sciences, 6(1), 34-45
Osabuohien-Irabor, O. (2021). Investors’ Attention: Does It Impact The Nigerian Stock Market
Activities?. Journal of Economics and Development, 23(1), 59-76.
Prasad, S., Mohapatra, S., Rahman, M. R., and Puniyani, A. (2022). Investor sentiment index: a
systematic review. International Journal of Financial Studies, 11(1), 6.
Rembokowati, N. A. (2025). How Investor Sentiment and Trading Behavior Affect Stocks Return.
Coopetition: Jurnal Ilmiah Manajemen, 16(1), 1-13.
Ryu, D., Ryu, D., and Yang, H. (2018). Investor sentiment and firm characteristics: Domestic
evidence. Asian review of financial research, 31(1), 1-38.
Sun, Y., Zeng, X., Zhou, S., Zhao, H., Thomas, P., and Hu, H. (2021). What Investors say is what
the Market Says: Measuring China’s Real Investor Sentiment. Personal and Ubiquitous
Computing, 25, 587-599.
Xia, Q. (2022, December). Advances in Research on Investor Sentiment and Stock Returns.
In 2022 2nd International Conference on Economic Development and Business Culture
(ICEDBC 2022), 791-795.
Zhang, C. (2008). Defining, Modeling, And Measuring Investor Sentiment. University of
California, Berkeley, Department of Economics.
Zhang, Chen, Liu, and Liu, (2018). The Impact Of Institutional Investors On Stock Returns - A
Study Based on Asset Pricing Model with Incomplete Information. Monthly Review of
Finance and Accounting, 2018(22): 163-169.
Zhou, G. (2018). Measuring Investor Sentiment. Annual Review of Financial Economics, 10, 239–
https://doi.org/10.1146/annurev-financial-110217-022725
Zubairu, M. (2015). The Influence of Investors Sentiment On Stock Market Returns in
Nigeria. Abuja Journal of Business and Management, 1(1), 11-29.
and momentum strategy in Nigerian stock market. Fuoye Journal of Finance and
Contemporary Issues, 3(1).
Aftab, M., Rehman, I. U., and Anifowose, A. D. (2016). Disposition Effect and Asset Pricing in
an Emerging Stock Market. International Journal of Economics and Empirical
Research, 4(6), 320-332.
Ajibola, J. O., Oni, T. O., and Awolaja, O. G. (2025). Computing the Investor Sentiment Index for
Nigeria: Methodology and Applications. African Economic and Management Review, 5(1),
1-9
Alajekwu, U.B, Obialor, M.C And Okoro, M.C. (2017). Effect of investor sentiment on future
returns in the nigerian stock market. Annals of Spiru Haret University. Economic
Series, 17(2), 75-102.
Ayinuola, T. F., and Adetiloye, K. A. (2023). Investigating the Nexus Between Investor Sentiment
and Stock Return Volatility in Nigeria. Educational Research (IJMCER), 5(3), 160-173.
Baker, M., and Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. The
Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x
Baker, M., and Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic
Perspectives, 21(2), 129–151. https://doi.org/10.1257/jep.21.2.129
Baker,
M., Jeffrey,
W.,
and Yu,
Y. (2012). Global,
local,
and
contagious
investor
sentiment. Journal of Financial Economics, 104, 272–287.
Barberis, N., and Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics
of Finance, 1, 1053-1128.
Barberis, N., Shleifer, A., and Vishny, R. (1998). A model of investor sentiment. Journal of
Financial Economics, 49(3), 307–343. https://doi.org/10.1016/S0304-405X(98)00027-0
Bouteska, A., Sharif, T. and Abedin, M. Z. (2023). Does investor sentiment create value for asset
pricing? An empirical investigation of the KOSPI listed firms. International Journal of
Finance & Economics. https://doi.org/10.1002/ijfe.2836
Brown, G. W., and Cliff, M. T. (2005). Investor sentiment and asset valuation. The journal of
Business, 78(2), 405-440.
Busari, R. A., Awotundun, D. A., and Anifowose, A. D. (2025). Stock portfolio and stock return
in Nigeria capital market. Journal of Management, Economics, and Industrial
Organiza8on, 9(1), 18-30.
De Long, J. B., Shleifer, A., Summers, L. H., and Waldmann, R. J. (1990). Noise trader risk in
financial markets. Journal of Political Economy, 98(4), 703–738.
Emmanuel, T. A., and Ahmed, A. T. (2020). Effect Of Investors’ Sentiment on Stock Market
Returns In Nigeria (1990-2017). International Journal of Research in Commerce and
Management Studies (ISSN: 2582-2292), 2(1), 21-43.
Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The
Journal of Finance, 25(2), 383–417.
Fonou-Dombeu, N. C., Nomlala, B. C., and Nyide, C. J. (2024). Investigating the Effect of Investor
Sentiment on Stock Return Sensitivity To Fundamental Factors: Case Of JSE Listed
Companies. Cogent Business & Management, 11(1), 2353846.
Haritha, P. H., and Rishad, A. (2020). An Empirical Examination Of Investor Sentiment and Stock
Market Volatility: Evidence From India. Financial Innovation, 6(1), 1–15.
https://doi.org/10.1186/s40854-020-00198-x
John, S. A., Abdullahi, I. B., And Abdulkadri, M. (2022). Investors’ sentiment And Stock Return:
Evidence From The Nigerian Stock Market. Ilorin Journal of Finance, 6(1), 42-51.
Kim, K., Ryu, D., and Yang, H. (2019). Investor Sentiment, Stock Returns, and Analyst
Recommendation Changes: The KOSPI Stock Market. Investment Analysts Journal, 48(2),
89–101. https://doi.org/10.1080/10293523.2019.1614758
Lemmon, M., and Portniaguina, E. (2006). Consumer Confidence and Asset Prices: Some
Empirical Evidence. The Review of Financial Studies, 19(4), 1499–1529.
Nabosu, S. S., M’ithiria, E. N., and Wepukhulu, J. M. (2022). Investor Sentiment and Stock Market
Return of Non-Financial Firms Listed on the Nairobi Securities Exchange. J. Finance
Account., 6(3), 65-81.
Nawar, N (2024). The Effect of Investor Sentiment on Stock Returns: Evidence from a Frontier
Market. Journal of Financial Markets and Governance, 3(2), 23-46.
Nguyen, H. H., Ngo, V. M., Pham, L. M., and Van Nguyen, P. (2025). Investor Sentiment And
Market Returns: A multi-horizon analysis. Research in International Business and
Finance, 74, 102701.
Njogo, B. O.,Jaiyeoba, A.O, and Mabinuori, O. (2020). Investors’ Sentiment And Stock Trading
in the Nigerian Capital Market. Caleb International Journal of Development Studies
3(2), 235-247
Nnoje, A. I., Okonkwo, J. J., and Anachedo, C. K. (2021). Investors’ sentiments, Market Dynamics
And Stock Market Returns In Nigeria. Journal of Contemporary Issues in
Accounting, 1(1), 56-73.
Nwanna, I. O., and Olayiwola, W. K. (2020). Investor sentiment and stock market performance in
Nigeria: Evidence from vector autoregression. International Journal of Economics and
Financial Issues, 10(3), 220–226.
Okonkwo, O., and Nwanna, I. (2019). Stock market reactions to macroeconomic announcements
in Nigeria. African Development Review, 31(4), 567–580.
Oni, O. T., Ajibola, O. J., and Awolaja, O. G. (2025). Is there any connectedness Between Investor
Sentiment and Nigeria Stock Market Performance?. Applied Journal of Economics,
Management and Social Sciences, 6(1), 34-45
Osabuohien-Irabor, O. (2021). Investors’ Attention: Does It Impact The Nigerian Stock Market
Activities?. Journal of Economics and Development, 23(1), 59-76.
Prasad, S., Mohapatra, S., Rahman, M. R., and Puniyani, A. (2022). Investor sentiment index: a
systematic review. International Journal of Financial Studies, 11(1), 6.
Rembokowati, N. A. (2025). How Investor Sentiment and Trading Behavior Affect Stocks Return.
Coopetition: Jurnal Ilmiah Manajemen, 16(1), 1-13.
Ryu, D., Ryu, D., and Yang, H. (2018). Investor sentiment and firm characteristics: Domestic
evidence. Asian review of financial research, 31(1), 1-38.
Sun, Y., Zeng, X., Zhou, S., Zhao, H., Thomas, P., and Hu, H. (2021). What Investors say is what
the Market Says: Measuring China’s Real Investor Sentiment. Personal and Ubiquitous
Computing, 25, 587-599.
Xia, Q. (2022, December). Advances in Research on Investor Sentiment and Stock Returns.
In 2022 2nd International Conference on Economic Development and Business Culture
(ICEDBC 2022), 791-795.
Zhang, C. (2008). Defining, Modeling, And Measuring Investor Sentiment. University of
California, Berkeley, Department of Economics.
Zhang, Chen, Liu, and Liu, (2018). The Impact Of Institutional Investors On Stock Returns - A
Study Based on Asset Pricing Model with Incomplete Information. Monthly Review of
Finance and Accounting, 2018(22): 163-169.
Zhou, G. (2018). Measuring Investor Sentiment. Annual Review of Financial Economics, 10, 239–
https://doi.org/10.1146/annurev-financial-110217-022725
Zubairu, M. (2015). The Influence of Investors Sentiment On Stock Market Returns in
Nigeria. Abuja Journal of Business and Management, 1(1), 11-29.
