(i) Yu and Yuan (2011) and Wang (2018a)

Research has given information on investors' feelings' effect on the medium variance association. Yu
and Yuan (2011) found a reliable relationship between the high feeling period near zero and the low
sentiment phase. The study's models are based on the mixed data sampling approach (MIDAS), the
asymmetric GARCH model, GARCH, and the rolling window model (RW). Findings from the same
show that (a) an increase in the mean as the price decreases causes a decrease in the level of
investor sentiment, demonstrating how significant observational signs are for economic
organizations. (b) Irrational traders are unreliable buyers. In contrast, reasonable traders devote
more money to stocks, and the mean-variance ratio should be emphasized to woe rational investors
to spend more. (c) The uncertainty of customer responses is erroneous over time, and there is a
negative correlation between arbitrary innovations and lower sentiments. According to Yildirim
(2017), in his study on behavioral finance, he found out that investors' irrationality is influenced by
psychological/emotional biases, while in the efficient market hypothesis, all people are treated as
rational investors. Yu and Yuan's analysis (2011) backs the behavioral finance hypothesis. A lot of
literature, however, rejects figures. According to Wang's 2018a review on investor sentiments and
the stock market, the findings are almost identical to the Yu and Yuan (2011). They both use the RW
model in approximating the conditional volatility. Wang in 2018a spreads the concept of investor
sentiments by contributing literature of the relationship between mean and variance by introducing
institutional investor sentiments as a factor. Despite the factor, institutional sentiment investors
being refined and taken as less susceptible to biased approximations of mean and variance of
portfolios, Devolt et al., 2018 in their study, found that institutional investors are considered
sentiment traders. This makes Wang 2018a claim that when investor sentiment is high, the risk-
return trade-off error is when is clearly visible. Wang 2018a sources data from Investors Intelligence
under bullish, neutral and bearish writers. Wang 2018a is peculiar in that he centres on the
European markets

(ii) Wang (2018b), Wang and Duxbury (2021)

Wang 2018b and Wang 2018a have related findings and therefore not much to differentiate their
methodologies on the variance and mean of financial portfolios interactions. Wang and Duxbury
(2021). What is key to note in the Wang and Duxtury 2021 is the statement that institutions, culture,
market participation, and education have an effect on the returns and risk of portfolios as evidenced
by the data from thirty eight-eight stock markets in their journal.

The additional literature added by Wang and Duxtury 2021 journal addresses the issue of expected
intraday returns and overnight returns. The article highlights the merits of each return and the size
of the return. It turns out that the intraday expected returns are the most profitable of all the spins
in the portfolio. Night-time returns have a larger proportion of expected total returns. Among the
markets that excelled in Wang and Duxtury 2021, the Chinese market is ranked leading with the
highest profitability in the market. Several factors have contributed to the positive performance of
the markets in the portfolios. The first factor is the availability of a large population in China, which
has resulted in many investments thriving.

Both studies argue that the relationship between mean and variance is weak (Yu and Yuan, 2011;
Wang, 2018aandb; Wang and Duxbury, 2021). They suggest that the risk-reward ratio cannot be the
only guide when investing. They argue that investor judgment also plays a crucial role, citing returns
from overnight investing and intraday trades (Wang, 2021).
 Critically review literature, and summarise and evaluate approaches to construct proxies for
investor sentiment.

The proxies are unique in that they provide an accurate prediction of the theoretical relationship
between sentiments and cross-section. This is because arbitrage and investor sentiment are the two
main two main ways through which sentiment can influence prices. In the first channel, arbitrage
limits are kept constant while sentimental demand shocks fluctuate by stock. Investor sentiment
could be taken as a speculative bias. This biasness causes more effect on the demand for stocks that
are more prone to speculation and whose valuations are both difficult to determine and subjective.

The main types of proxies for investment sentiment are mutual fund flows, retail investor
transactions dividend-paying stock premiums, IPO volume, trading volume closed-end fund
discounts, new stock offerings implied options volatility, insider trading, and IPO first-day returns. 1)
Retail investor trades are types of proxy that are extremely linked with systematic sentiment.
Sentiment interpretations are usually recorded for retail investors according to their trading
movements. 2) Mutual fund flow is often applied to gauge investor sentiment about the stock
market and come up with proof on how prices were influenced by the sentiment factor. Strong stock
influxes into a mutual fund forecast moderately poor performance in the future. 3) Trading volume is
often regarded as an indication of investor sentiment. When there is short selling restrictions, which
is often practiced, risk-neutral investors are more enter the stock market when bullish, go over
bearish, and place trade on the falling action.

4) Premia on dividend-paying stocks shows how nonpayers and average market-to-book-value ratios
of dividend payers differ. The behaviour of firms in paying dividends depends and the type of
dividend. The firms are reluctant to pay when dividends are discounted but are likely to pay when
they are at a premium. Whether dividends are discounted or are at a premium depends on their
demand. When demand is high, dividends are at a premium and when demand is low, dividends are
discounted.

5) Closed-end fund discounts are built on how fund's market price and the net asset valuation of a
fund's actual security holdings differ. It gauges individual investor sentiment. When commercial
investors wrongly hold closed-end funds, the average discount on closed-end stock funds can be a
sentiment index, with the discount increasing when trade investors are pessimistic. 6) Option
implied volatility is often taken as a measure of investor fear. Fear and market volatility index
influence each other and move in a similar direction. Sensitivity of sentiment is illustrated by the
volume of initial public offerings and first day returns on initial public offerings. The sentiments
discussed here are investor enthusiasm and market timing. Enthusiasm is illustrated by a high return
on IPO on the first day. On the other hand, market timing is shown by idiosyncratic return on IPOs.
The demand of IPOs is greatly influenced by investor sentiment.

The new capital problems show that high equity values predict low stock market returns and suggest
that this pattern reflects companies successfully switching between equity and debt to lower the
overall cost of capital. This pattern does not necessarily imply that individual companies or their
managers can predict prices in the market as a whole. Rather, correlated price manipulation
between firms can lead to correlated management actions, which can then predict correlated price
manipulation corrections, i.e. H. predicted market returns. Insider trading has evidence that insider
trading activity can predict stock performance and generate significant profits. Corporate executives,
board members and large shareholders have better information about the true value of their firms
than outside investors. Personal portfolio decisions may also reveal the mispricing of the firms. If
sentiment leads to correlated mispricing across firms, insider-trading patterns may contain a
systematic sentiment component.

Sentiment analysis is used to capture investor biases and securities in investing and capture investor
sentiment through proxies. Sentiment analysis can be undertaken to calculate price Factors such as
company beliefs, fundamental policies, investors beliefs, public and market sentiment, etc. influence
investor decisions, and social media channels such as facebook, twitter, etc., are a good proxy source
to analyse the same. Investor survey/s, technical analysis, mutual fund flow, and IPO returns are
good ways of elaborating proxy on investor sentiment. Sentiment analysis may also be evaluated via
a natural language processing tool to capture the investors sentiment/regulate the investors
decision making in the stock market. The same is a means of identifying expectations about future
cash inflow/outflow as well as investment risks. The same can lead to fluctuation in stock prices and
create uncertainty about future investments/returns. Such proxies mainly affect the value of buyer-
initiated shares. Imbalance proxies can also serve as measures of market returns and trading. Proxies
such as volatility premium is based on the theory that sentiment strongly influences hard to value/
hard to arbitrage stock. Volatile stocks are very risky to trade with since they bear both a
fundamental and an arbitrage risk. Noise trades are linked to anamolies and the traditional asset
pricing model is unable to explain striking events in the stock market. Investor sentiment may thus
be described as the expectation observed with mood, feeling estimations, perceptive and spiritual
reasons regarding amounts of capital. Such sentiments can be evaluated as emotional answers
triggered by changes and their impact on stock profits. Sentiments may be a standard judgment
error whereas the noise trader party is contrary to a series of unrelated mistakes.

Recent uncertainties in financial markets, contemporary economic expansion interest rates, and
fluctuation in the stock markets at times force investors to think before investing in financial
securities. Investors thus have to evaluate issues related to risk, return, volatility of financial
securities, and liquidity, etc. Since standard financial forecasting models weren't equipped to
accurately predict the impacts of Covid-19 on the industry; predictions were difficult despite
initiatives such as vaccine development for checking the pandemic. Stock market prospects are
considered to be dependent on the speed of development and distribution of a COVID-19 vaccine,
and on the ability of companies to adjust/adapt to new ways of doing business rather than wait for
business to return to normal (Bonser-Neal, Wang,

2021). Studies undertaken by Wang (2021) indicate no conclusive empirical evidence in support of a
positive mean-variance relation. Empirical evidence supports the differential impact of institutional
investor sentiment on the mean-variance relation. Further, markets are culturally prone to
overreaction and with low level/s of market integrity institutional investor sentiment tend to distort
the risk-return trade-off.

The selected market is the United Kingdom (UK). Extending Wang's 2021 results to the UK market
will help us understand how the market reacts to the relationship between mean and variance and
how those reactions compare to the study conducted in US markets. The UK market is suitable as
user data on investor sentiment and investor returns is easily accessible. Return data is available
daily, weekly, fortnightly and monthly for the Financial All Time Share Index. Therefore, we can
easily examine and establish these relationships of investor sentiment to expected market returns
and the market's conditional variance using readily available data. The UK market also has a high
stock market, which influences investment decisions and returns hence this makes studying sock
returns and risk returns easy and possible. Finally, the UK market has a very efficient trading book.
This type of portfolio allows behavioral performance and investor sentiment to efficiently identify
market returns and market volatility.

Market Returns From the descriptive table, the average return on the market portfolio for this
period on the FTSE was -0.00434320; the value is negative, meaning that for the period, the
investors on this platform made losses since the prices for the stock dropped below the price with
which it was bought. The variance (the risk measure that is inherent when investing in a single
portfolio in FTSE in this period was 0.002.).The measure for risks due to volatility (standard
deviation) for this stock was 0.047960852.this value is considerably low, implying the extent of
volatility risk for this stock was low. The maximum and minimum returns on the market portfolio for
the stock market during the period were 0.116465and -1.4854 respectively.

The following is a list of some descriptive statistics regarding the returns of the UK's stock market:

Column1

Mean

3.126E-05

Standard Error

0.00030718

Median

0.0005

Mode

-0.0008

Standard Deviation

0.011015731

Sample Variance

0.000121346

Kurtosis

14.27814393
Skewness

-0.87540632

Range

0.1992

Minimum

-0.1087

Maximum

0.0905

Sum

0.0402

Count

1286

Largest(1)

0.0905

Smallest(1)

-0.1087

Confidence Level(95.0%)

0.000602629

The following is a list of some descriptive data on the put-call ratio:

Column1

Mean

-7.3

Standard Error

0.267542422

Median

-7

Mode

-6.5
Standard Deviation

1.196486083

Sample Variance

1.431578947

Kurtosis

-1.723059358

Skewness

-0.067599911

Range

3.5

Minimum

-9

Maximum

-5.5

In order to filter out conditional volatility, I have decided to use the Rolling Window model. I decided
to use the Rolling Window model to filter conditional volatility because it is one of the most popular
methods available.

The findings of the research indicate that there may be a positive connection between investor
sentiment and stock market volatility in the UK stock market. This is shown by the fact that the
analysis produced these results. Specifically, the findings indicate that a high level of investor
sentiment is likely to be accompanied by a high level of volatility in the stock market.

Conclusion

This paper examines the relationship between mean and variance over different periods within
trading days. We show that there is a positive mean-variance relationship when the stock market is
closed (i.e. overnight). Still, the positive relationship is skewed when the market is open (i.e.,
overnight, during the day). The evidence offers a new explanation for the poor risk/reward trade-off
in stock markets. This study shows the influence of investor sentiment on the trade-off between
market mean and variance. We find that the stock market's expected excess return is positively
related to conditional market movement during periods of low sentiment but not to move during
periods of high sentiment. These results are consistent with sentiment traders subverting positive
mean-variance compensation during periods of high sentiment. We also find that the negative
correlation between returns and recent volatility innovations is much more robust during periods of
low sentiment. This latter result is consistent with the stronger positive ex-ante relationship over
these periods.