Price Behavior, Volatility Structure, and Efficiency in the French Stock Market

Abstract

This paper examines the influence of investor sentiment on stock market returns in France, using monthly data from the CAC All-Tradable index covering the period from March 2005 to February 2019. Applying the Autoregressive Distributed Lag (ARDL) bounds testing approach, we assess both long-run and short-run relationships between sentiment indicators and market performance. After confirming the existence of a long-run equilibrium, an ARDL error-correction model (ARDL-ECM) is estimated to capture short-term dynamics and the speed of adjustment toward equilibrium. The results show a positive, statistically significant association between investor sentiment and market returns in both the short- and long-term, suggesting that shifts in investor optimism or pessimism persistently influence price movements. These findings challenge the Efficient Market Hypothesis by revealing sentiment-driven deviations from fundamentals. The study contributes to the behavioral finance literature by documenting how psychological factors affect the French stock market and offers practical insights for policymakers and investors to improve market stability and forecasting accuracy