Booms, Busts, and Sentiment: The Impact on Price Discovery
Australian School of Business; Centre for International Finance and Regulation (CIFR)
Tami Dinh Thi
University of St. Gallen, Institute of Accounting, Control, Auditing
Andrew B. Jackson
University of New South Wales (UNSW) - School of Accounting
September 13, 2012
UNSW Australian School of Business Research Paper No. 2012 ACCT 09
We study how sentiment affects the speed with which prices reflect information. We find that deviations from a steady level of economy-wide sentiment are associated with more timely price discovery. We also find that in general, price discovery is more timely for firms with greater sensitivity to economy-wide sentiment, as measured by a sentiment beta. However, this result does not hold when analyzing economy-wide sentiment and a firm's sentiment beta simultaneously. During bust periods, high sentiment beta stocks have lower timeliness. Our research sheds light on the price formation process when sentiment deviates from normal levels. In particular, our results suggest that a firm's sentiment beta is sensitive to changes in an exogenous economy-wide sentiment.
Number of Pages in PDF File: 32
Keywords: Timeliness, Price Discovery, Sentiment, Sentiment Betaworking papers series
Date posted: September 14, 2012
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