IMPACT OF BULLISH AND BEARISH TRENDS ON INVESTOR SENTIMENT IN STOCK MARKET: A STUDY FROM PAKISTAN

Abstract

This study systematically examines the impact of bullish and bearish market trends on investor sentiment, focusing on the dynamic and evolving case of Pakistan’s stock market. Investors' decision-making processes are influenced by a myriad of factors. The primary objective is to unravel the criteria investors rely on when deciding to enter or exit the market during different phases. By leveraging prospect theory as the theoretical foundation, this research explores how varying levels of perceived gains or losses influence risk appetite during contrasting market trends. Ultimately, this research contributes to a deeper understanding of market psychology and decision-making, offering valuable implications for enhancing market stability and investor confidence. The study has been carried out by using data of 30 listed companies of Pakistan Stock Exchange, the daily data of the trading volume and stock turnover was obtained from 2016 to 2022. It was hypothesized that there is a negative relationship between the bullish and bearish trends and the investor’s sentiments. The data analysis which has been conducted with the help of descriptive statistics, correlation analysis, regression analysis and Granger causality. Granger causality analysis states that there is a positive relationship between the bullish trends and the investor’s sentiments and there is also a positive relationship between bearish trends and the investor’s sentiments. The findings of the study hold significant implications for the individual and institutional investors as they can alter the decisions and behaviors of the investors with respect to the given information. The findings of this study offer multiple recommendations for improving the investor’s decision making during the bearish and bullish trends.