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How Does Investor Sentiment Affect the Cross-Section of Stock Returns?

John Wang
affiliation not provided to SSRN

Jeffrey Wurgler
NYU Stern School of Business; National Bureau of Economic Research (NBER)

Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)


February 2007


Abstract:     
Broad waves of investor sentiment should have larger impacts on securities that are more difficult to value and to arbitrage. Consistent with this intuition, we find that when an index of investor sentiment takes low values, small, young, high volatility, unprofitable, non-dividend-paying, extreme growth, and distressed stocks earn relatively higher subsequent returns. When sentiment is high, the aforementioned categories of stocks earn relatively lower subsequent returns.

Keywords: Sentiment, cross-section, prediction, index, behavioral

JEL Classifications: G00

Working Paper Series

Date posted: June 26, 2008 ; Last revised: January 12, 2009

Suggested Citation

Wang, John, Wurgler, Jeffrey A. and Baker, Malcolm P., How Does Investor Sentiment Affect the Cross-Section of Stock Returns? (February 2007). Available at SSRN: http://ssrn.com/abstract=1151310


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Contact Information

Malcolm P. Baker (Contact Author)
Harvard Business School ( email )
Boston, MA 02163
United States
617-495-6566 (Phone)
HOME PAGE: http://www.people.hbs.edu/mbaker
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
John Wang
affiliation not provided to SSRN
Jeffrey A. Wurgler
NYU Stern School of Business ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0367 (Phone)
HOME PAGE: http://www.stern.nyu.edu/~jwurgler/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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