Finance Research Seminar: "Investor Sentiment and Fundamentally Unrelated Securities"
About this seminar
This seminar examines how investor sentiment creates price co-movement between crypto assets and meme stocks, highlighting the role of retail attention and behavioural demand shocks.
Speaker
Our speaker is Dr Deeya Sewraj, Lecturer in Finance, Newcastle University Business School
Abstract
This paper studies sentiment-driven co-movement across fundamentally unrelated securities. We focus on small-cap growth equities and cryptocurrencies, two asset classes with no obvious shared cash-flow fundamentals, valuation anchors, or economic exposure, yet which exhibit significant co-movement in price.
Using a regime-switching framework and three unique investor sentiment indexes, we show that this co-movement is strongly state-dependent: correlations and common price variation rise sharply during positive-sentiment regimes and attenuate during negative-sentiment regimes.
To pinpoint the securities most exposed to this mechanism, we construct regime-specific baskets of small-cap growth firms using textual analysis of retail-investor messaging boards. These boards proxy for noise traders who are more susceptible to shifts in attention and irrational exuberance. The resulting baskets display the strongest and most sentiment-sensitive co-movement with cryptocurrencies.
In contrast, we find no comparable regime-switching co-movement between cryptocurrencies and large-cap equities when large-cap baskets are constructed from textual analysis of traditional financial media, which we interpret as a proxy for informed, professional investor attention.
Overall, the results support a behavioural channel in which retail sentiment and attention generate correlated demand shocks across otherwise unrelated assets, with implications for diversification, risk management, and the interpretation of cross-asset contagion episodes.
Attendance
This seminar is open to current students and staff at Newcastle University. Registration is required.