Investor Sentiment, Anomalies, and Macroeconomic Conditions

Asia-Pacific Journal of Financial Studies, Vol.47(6), Dec 2018, pp.751-804

64 Pages Posted: 5 Jul 2015 Last revised: 2 Jan 2019

See all articles by Dongcheol Kim

Dongcheol Kim

Korea University Business School

Haejung Na

California State University, Los Angeles

Date Written: September 30, 2018

Abstract

We examine whether the results supporting the sentiment-related overpricing story by Stambaugh, Yu, and Yuan (J. Financial Economics, v.104, p.288-302) is still valid after controlling for macroeconomic conditions. We no longer find the results consistent with the sentiment-related overpricing story after adjusting for the effect of macroeconomic conditions. The risk factors associated with macroeconomic conditions are mostly priced and the average return spread in the anomalies is largely accounted for by the expected return spread implied by the risk factors. Their results might be a consequence of the use of an inadequately constructed sentiment index. It is premature to argue that the returns in the anomalies are driven by investor sentiment.

Keywords: Investor sentiment; Anomalies; Risk factors; Macroeconomic variables; Sentiment-related overpricing

JEL Classification: G12; G14

Suggested Citation

Kim, Dongcheol and Na, Haejung, Investor Sentiment, Anomalies, and Macroeconomic Conditions (September 30, 2018). Asia-Pacific Journal of Financial Studies, Vol.47(6), Dec 2018, pp.751-804, Available at SSRN: https://ssrn.com/abstract=2626683 or http://dx.doi.org/10.2139/ssrn.2626683

Dongcheol Kim (Contact Author)

Korea University Business School ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea
+82-2-3290-2606 (Phone)

Haejung Na

California State University, Los Angeles ( email )

5151 State University Dr.
Simpson Tower F316
Los Angeles, CA CA 90032
United States
323-343-2871 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
174
Abstract Views
1,888
Rank
311,080
PlumX Metrics