Know the flow: Sentiment extraction from retail order flow data

Abstract

Retail investor sentiment has been a subject of interest in the finance literature for a number of years. Using the order flow based on a unique data set with 20.7 million transactions in bank-issued warrants from the European Warrant Exchange, we present the construction of a retail investor sentiment index. We show that retail investors are contrarian, that retail investor sentiment is an important part of the equity pricing process and that we have a good measure of the sentiment. We believe that this information can be used by exchanges to increase transparency in financial markets. As a whole our findings further support a role for retail investor sentiment in the equity pricing process.

Publication
Lecture Notes in Business Information Processing, (23 LNBIP), pp. 31-46, https://doi.org/10.1007/978-3-642-01197-9_3