INVESTOR SENTIMENT AND STOCK VOLATILITY: NEW EVIDENCE FROM BORSA ISTANBUL BENCHMARK AND SECTORAL INDICES

Turkish

This paper analyzes the effect of investor sentiment on stock returns and volatility in BIST benchmark and sectoral indices, using daily data from 2010 to 2023. Following the Baker and Wurgler methodology, we develop an Investor Sentiment Index and examine its effects on the returns and volatility of stock indices. Our findings show that investor sentiment has a significant negative effect on returns and a positive effect on the conditional volatility of Borsa Istanbul's benchmark and sectoral indices. Sub-sample analysis also emphasize that sentiment-driven investment decisions have declined in the post Covid-19 period, suggesting a shift toward more rational and information-based decision-making in the aftermath of the crisis. Finally, we assess the investment performance of BIST Sectoral Indices using portfolio performance metrics, considering the role of investor sentiment. Moreover, we classify sectors as high- or low-performing, based on how investor sentiment affects their conditional volatility to support investment decisions.