Investor Sentiment and Stock Price Dynamics: An Empirical Study on the Casablanca Stock Exchange

This study explores investor sentiment, a key concept in behavioral finance, reflecting the collective optimism or pessimism of market participants about future investments. Sentiment can lead to irrational market behaviors like bubbles and crashes. It often deviates from economic fundamentals, influencing asset prices, liquidity, and volatility. Sentiment is considered as positive (optimism), negative (pessimism), or neutral (rational analysis). The research highlights sentiment’s impact on market volatility and its importance for predicting market movements and guiding investment strategies. The study emphasizes the role of investor sentiment in the Moroccan stock market. So, a negative sentiment impacts return and financial risk (variance) differently to the extent that it reduces the former and increases the latter. As for the positive sentiment, it has an opposite effect compared to the negative one, it increases the return and reduces the risk.