Investment Decisions and Investor Behaviour

Using the data from 4.4 million transactions in bank-issued warrants from the European Warrant Exchange, we compute an index of investor confidence and expectations. We show that retail investors are contrarian, that retail investor sentiment is an important part of the equity pricing process and that we have a good measure of the sentiment. Moreover, our measure is better than existing measures for our time period between January 2006 and March 2007. As a whole our measure of findings further supports a role for retail investor sentiment in the equity pricing process.