Investor Sentiment and the Cross‐Section of Stock Returns

Abstract

ABSTRACT We study how investor sentiment affects the cross‐section of stock returns. We predict that a wave of investor sentiment has larger effects on securities whose valuations are highly subjective and difficult to arbitrage. Consistent with this prediction, we find that when beginning‐of‐period proxies for sentiment are low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non‐dividend‐paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, on the other hand, these categories of stock earn relatively low subsequent returns.

Cite this paper

Related papers

1. Law and Finance1998
2. On Persistence in Mutual Fund Performance1997
3. The Cross‐Section of Expected Stock Returns1992
4. Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency1993
5. Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches2008