Fear sentiment, liquidity, and trading behavior: Evidence from the index ETF market

Junmao Chiu*, Huimin Chung, Keng Yu Ho

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


This paper explores how the fearful market-based sentiment indicators affect investor trading behavior and market liquidity. Our results show that a high degree of fearful market-based sentiment induces more sell orders along with a reduction in market liquidity, and vice versa. In addition, most of our findings suggest that the fear sentiment, in the case of extremely high implied volatility, decreases net buying volume more significantly. As for the interaction between fearful market-based sentiment and institutional investor expectation, we show that net buying volume and market liquidity decrease (increase) more significantly than they normally do when the fearful market-based sentiment increases (decreases) in the state of bearish institutional investor expectation. The results provide support to the myopic loss aversion of investors.

Original languageEnglish
Article number1450017
JournalReview of Pacific Basin Financial Markets and Policies
Issue number3
StatePublished - 1 Jan 2014


  • Fearful market-based sentiment
  • equity liquidity
  • index ETF market
  • net buying volume

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