The Asymmetric Predictive Effects of Investor Sentiment

Publikation: Working paperForskning

Resumé

We use the returns on lottery-like stocks to construct a novel index for investor sentiment in the stock market. This new measure is closely related to previously developed sentiment indicators, but more accurately tracks speculative episodes over the sample period. Using our index, we find that the relationship between sentiment and returns is asymmetric: during bear markets, high sentiment predicts low future returns for the cross-section of speculative stocks and the market overall while the relationship during bull markets is weak and often insignicant. Thus, the results suggest that sophisticated investors only act as corrective force during certain time periods. We also show that our index predicts implied volatility, media pessimism, and mutual fund flows. Overall, our findings are consistent with both the theories and anecdotal accounts of investor sentiment in the stock market.
OriginalsprogEngelsk
Udgivelses stedCopenhagen
UdgiverCopenhagen Business School [wp]
Antal sider41
StatusUdgivet - 2012

Emneord

  • Behavioral Finance
  • Investor Sentiment

Citer dette

Lutz, C. (2012). The Asymmetric Predictive Effects of Investor Sentiment. Copenhagen: Copenhagen Business School [wp].
Lutz, Chandler. / The Asymmetric Predictive Effects of Investor Sentiment. Copenhagen : Copenhagen Business School [wp], 2012.
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abstract = "We use the returns on lottery-like stocks to construct a novel index for investor sentiment in the stock market. This new measure is closely related to previously developed sentiment indicators, but more accurately tracks speculative episodes over the sample period. Using our index, we find that the relationship between sentiment and returns is asymmetric: during bear markets, high sentiment predicts low future returns for the cross-section of speculative stocks and the market overall while the relationship during bull markets is weak and often insignicant. Thus, the results suggest that sophisticated investors only act as corrective force during certain time periods. We also show that our index predicts implied volatility, media pessimism, and mutual fund flows. Overall, our findings are consistent with both the theories and anecdotal accounts of investor sentiment in the stock market.",
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Lutz, C 2012 'The Asymmetric Predictive Effects of Investor Sentiment' Copenhagen Business School [wp], Copenhagen.

The Asymmetric Predictive Effects of Investor Sentiment. / Lutz, Chandler.

Copenhagen : Copenhagen Business School [wp], 2012.

Publikation: Working paperForskning

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Lutz C. The Asymmetric Predictive Effects of Investor Sentiment. Copenhagen: Copenhagen Business School [wp]. 2012.