Discuss the theoretical underpinnings for empirical findings of Yu and Yuan.

Required:

1. Discuss the theoretical underpinnings for empirical findings of Yu and Yuan (2011). [6 marks]

2. Suppose that you decide to extend the US evidence from Yu and Yuan (2011) to another market. Select a market and motivate your selection. [8 marks]

3. Critically review related literature, and summarise and evaluate approaches to construct proxies for investor sentiment. [12 marks]

4. Determine a proxy for investor sentiment in your selected market, and elaborate motivation for your selection. [8 marks]

5. Present descriptive statistics of (i) market returns of the selected market and (ii) investor sentiment. [15 marks]

6. Select one method to filter conditional volatility of market returns, and present descriptive statistics of conditional volatility. [15 marks]

7. Examine (i) the relation between market returns and investor sentiment, and (ii) the relation between market returns and conditional volatility. Discuss potential limitations of your work. [36 marks]

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