Market response to investor sentiment : [This version May 3, 2010]

  • Recent empirical research suggests that measures of investor sentiment have predictive power for future stock returns over the intermediate and long term. Given the widespread publication of sentiment indicators, smart investors should trade on the information conveyed by such indicators and thus trigger an immediate market response to their publication. The present paper is the first to empirically analyze whether an immediate response can be identified from the data. We use survey-based sentiment indicators from two countries (Germany and the US). Consistent with previous research we find there is predictability at intermediate time horizons. For the US, however, the predictability all but disappears after 1994. Using event study methodology we find that the publication of sentiment indicators affects market returns. The sign of the immediate response is the same as that of the predictability over the intermediate term. This finding is consistent with the idea that sentiment is related to mispricing, but is inconsistent with the idea that the sentiment indicator provides information about future expected returns.

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Metadaten
Author:Jördis HengelbrockGND, Erik TheissenORCiDGND, Christian Westheide
URN:urn:nbn:de:hebis:30:3-356660
URL:http://ssrn.com/abstract=1343798
DOI:https://doi.org/10.2139/ssrn.1343798
Document Type:Report
Language:English
Year of Completion:2010
Year of first Publication:2010
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/11/26
Tag:Event Study; Investor Sentiment; Return Predictability
Issue:version: May 3, 2010
Page Number:26
HeBIS-PPN:352816457
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht