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Investor Sentiment and Momentum and Contrarian Trading Strategies: Mutual Fund EvidenceGrant E. Cullenaffiliation not provided to SSRN Dominic GasbarroMurdoch University Gary S. MonroeUniversity of New South Wales (UNSW) - Australian School of Business J. Kenton ZumwaltColorado State University - Department of Finance & Real Estate August 16, 2011 24th Australasian Finance and Banking Conference 2011 Paper Abstract: Stocks with high sentiment betas are more sensitive to investor sentiment, with more subjective valuations. We contend that sentiment beta also captures the duration of mispricing. Accordingly, stocks with high (low) sentiment betas provide opportunities for momentum (contrarian) traders. We form hypothetical zero investment portfolios of high (low) sentiment betas stocks, and show that momentum profits decompose to reveal positive (negative) serial correlation of idiosyncratic returns, that contribute to momentum (contrarian) profits. Furthermore, actual mutual funds identified as momentum (contrarian) traders hold stocks with higher (lower) sentiment betas. Additionally, funds adjust sentiment betas to enhance performance as sentiment changes.
Number of Pages in PDF File: 52 Keywords: Investor sentiment, Momentum, Contrarian, Mutual fund JEL Classification: G2, G11, G14, G23 working papers seriesDate posted: August 17, 2011Suggested CitationContact Information
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