In this paper, we use a proxy for investor sentiment and employ a generalized autore-gressive conditional heteroskedasticity in mean (GARCH-M) model to show the impact of investor sentiment on excess returns in Taiwan stock market. Firstly, the evidences suggest that the change in trading volume is a suitable proxy for investor sentiment. Furthermore, the conditional volatility and excess returns have a negative and significant relationship. We argue that the irrational sentiment has influence on stock valuations.
International Journal of Information and Management Sciences=資訊與管理科學 21(1), pp.13-28