Abstract

http://ssrn.com/abstract=1364911
 
 

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Global, Local, and Contagious Investor Sentiment


Malcolm P. Baker


Harvard Business School; National Bureau of Economic Research (NBER)

Jeffrey Wurgler


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

Yu Yuan


Shanghai Advanced Institute of Finance; University of Pennsylvania - Wharton Financial Institutions Center

October 17, 2010

Journal of Financial Economics (JFE), Vol. 104, pp 272-287, May 2012
AFA 2010 Atlanta Meetings Paper

Abstract:     
We construct investor sentiment indices for six major stock markets and decompose them into one global and six local indices. In a validation test, we find that relative sentiment is correlated with the relative prices of dual-listed companies. Global sentiment is a contrarian predictor of country-level returns. Both global and local sentiment are contrarian predictors of the time series of cross-sectional returns within markets: When sentiment is high, future returns are low on relatively difficult to arbitrage and difficult to value stocks. Private capital flows appear to be one mechanism by which sentiment spreads across markets and forms global sentiment.

Number of Pages in PDF File: 47

Keywords: Sentiment, Return predictability

JEL Classification: G11, G12, G14, G15, G17

Accepted Paper Series


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Date posted: March 23, 2009 ; Last revised: March 11, 2012

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffrey and Yuan, Yu, Global, Local, and Contagious Investor Sentiment (October 17, 2010). Journal of Financial Economics (JFE), Vol. 104, pp 272-287, May 2012; AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1364911

Contact Information

Malcolm P. Baker
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
Jeffrey A. Wurgler
NYU Stern School of Business ( email )
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)
HOME PAGE: http://www.stern.nyu.edu/~jwurgler/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Yu Yuan (Contact Author)
Shanghai Advanced Institute of Finance ( email )
Shanghai
China
HOME PAGE: http://https://finance.wharton.upenn.edu/~yuanyu
University of Pennsylvania - Wharton Financial Institutions Center ( email )
3733 Spruce Street
Philadelphia, PA 19104-6374
United States
Feedback to SSRN


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