How Does Investor Sentiment Affect the Cross-Section of Stock Returns?
affiliation not provided to SSRN
NYU Stern School of Business; National Bureau of Economic Research (NBER)
Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)
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.
Number of Pages in PDF File: 27
Keywords: Sentiment, cross-section, prediction, index, behavioral
JEL Classification: G00working papers series
Date posted: June 26, 2008 ; Last revised: January 12, 2009
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