The Short of It: Investor Sentiment and Anomalies
Robert F. Stambaugh
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
University of Minnesota
Shanghai Advanced Institute of Finance; University of Pennsylvania - Wharton Financial Institutions Center
October 13, 2011
Journal of Financial Economics (JFE), Vol. 104, pp 288-302, May 2012
AFA 2012 Chicago Meetings Paper
This study explores the role of investor sentiment in a broad set of anomalies in cross-sectional stock returns. We consider a setting where the presence of market-wide sentiment is combined with the argument that overpricing should be more prevalent than underpricing, due to short-sale impediments. Long-short strategies that exploit the anomalies exhibit profits consistent with this setting. First, each anomaly is stronger - its long-short strategy is more profitable - following high levels of sentiment. Second, the short leg of each strategy is more profitable following high sentiment. Finally, sentiment exhibits no relation to returns on the long legs of the strategies.
Number of Pages in PDF File: 37
Keywords: Investor Sentiment, Anomaly, Short-sale Constraint
Date posted: March 15, 2010 ; Last revised: March 11, 2012
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