This study investigates the dynamic relationship between investor sentiment and stock returns among 151 listed firms on the Nigerian Exchange Limited (NGX) across the 2011–2025 period, employing fixed-effects panel regression within an ex-post facto research design. Investor sentiment, operationalized through market-wide proxies including dividend yield spreads, trading volume dynamics, and volatility indices, demonstrates significant positive predictability of contemporaneous stock returns. The baseline sentiment coefficient of 0.723 (p<0.01) indicates that a one-unit increase in lagged sentiment predicts a 0.723% elevation in current-period monthly returns. Critically, this relationship exhibits pronounced heterogeneity across firm characteristics and governance structures. Larger firms, as measured by log-transformed total assets, experience attenuated sentiment effects (interaction coefficient: −0.056, p<0.05), whilst higher-leverage firms demonstrate heightened sentiment sensitivity (interaction coefficient: +0.078, p<0.05). Corporate governance mechanisms, particularly board independence and Big Four audit engagement, materially moderate sentiment-return associations, reducing sentiment coefficients by approximately 15% and 20% respectively. Sectoral analysis reveals pronounced sentiment effects in energy sector firms (coefficient: 1.234, p<0.01), substantially exceeding financial sector firms (coefficient: 0.456, p<0.05), consistent with commodity sector vulnerability to macro-cyclical sentiment dynamics. Post-estimation diagnostics confirm model specification validity, with Hausman tests supporting fixed-effects specification and heteroskedasticity-robust inference procedures employed throughout. The study contributes to emerging market behavioral finance literature by demonstrating that whilst investor sentiment exercises material influence over NSE pricing dynamics, this influence concentrates among smaller, more highly leveraged, poorly-governed firms and commodity-linked sectors. Implications for portfolio managers emphasize sentiment-based risk adjustment protocols; for corporate leaders, governance strengthening as sentiment volatility mitigation; and for regulators, circuit breaker implementation and disclosure enhancement to constrain sentiment-driven market inefficiencies.
Onipe Adabenege Yahaya (Sun,) studied this question.