The Extreme Decline of Investor Sentiment and Market Efficiency: Evidence from the Electric Appliances Industry in Japan

This paper aims to clarify whether weak form market efficient hypothesis holds in markets with deteriorated investor sentiment by focusing on the return dynamics of the Japanese electric appliances industry stocks. The contributions derived by our empirical analysis are as follows. First, this paper revealed that when investor sentiment is very stable, two successive days’ returns have no relation. Hence in markets with very stable sentiment, weak form market efficient hypothesis holds. Second, we clarified that when investor sentiment is deteriorated, two successive days’ returns are statistically significantly connected. Therefore, in markets with extremely declined investor sentiment, weak form market efficient hypothesis does not hold.