Investor Sentiment Analysis and Its Impact on Stock Returns in the Egyptian Exchange (EGX)

Abstract:
This study aims to develop a composite index reflecting investor sentiment in the Egyptian market, using Principal Component Analysis (PCA) methodology. The index is based on a set of economic and financial variables such as trading volume, exchange rates, interest rates, and the Global Volatility Index (VIX). Linear regression models (OLS) are also used to analyze the relationship between investor sentiment and stock returns.
The results indicate that the sentiment index itself does not have a significant direct impact on stock returns. However, variables such as trading volume and exchange rates emerge as key drivers of sentiment in the Egyptian market. Additionally, the Global Volatility Index (VIX) proves to be a reliable predictive variable reflecting fluctuations in investor sentiment and their expectations of future returns.