This paper analyzes the impact of national sentiment and investors’ sentiment on stock market. Facebook Gross National Happiness (FGNH) Index is taken as a national sentiment score as the people of a country post comments reflecting their moods status. Initial analysis of national sentiment and NSE index return confirmed that there is no significant impact. Further analyzing the impact of negative sentiment on NSE index return and the impact of positive sentiment on NSE index return revealed that negative sentiments have greater bearing on NSE index return than positive sentiments. The stock returns and national sentiments are characterized by complex systems. In this study, ANFIS method is employed to understand the relationship between sentiments and stock returns. Comparing the performance of VAR and ANFIS, ANFIS better explains the relationship than VAR, and ANFIS also makes it possible to infer linguistic interpretations about the relationship more concretely.

Investment bankers and analysts are exploring applications of new techniques to understand the price behavior in the stock market. A plethora of concepts from physics are used in the field of finance—like earth quake prediction techniques to predict stock market price fluctuations (Sorenette, 2004), quantum physics to understand stock price behavior and the concept of Brownian motion in option pricing (Beinhocker, 2007). This study applies an engineering concept, fuzzy logic, to understand the underpinning relationship between national sentiments, investor sentiments and their impact on stock market activities. Though share price is affected by a number of extended factors, it depends mainly on the demand for and supply of the particular security. When the number of shares available in a given company is limited, increase in demand for the company share will automatically increase the price of the share and vice versa. In theory, only the performance of a company should impact upon its share price and those reporting growing profit are likely to have higher demand (Irungu, 2013). However, the current state of the market and the economy as a whole has a bearing on stock price fluctuations. For example, though the terrorist attacks in September 2001 had nothing to do directly with many publicly traded companies, stock markets around the world plummeted as investors sold shares in a fit of panic. Eventually, it is public mood that sparks the movement in share prices in the short run (Narayanan, 2007). Hence, this research tests the relationship between national sentiments and stock markets.

Applied Finance Journal, Facebook Gross National Happiness (FGNH), VAR, Gross National Happiness Index (GNHI), Ordinary Least Square (OLS), ANFIS, ANFIS, Sentiments, Stock Market, Fuzzy Logic Approach.