A Model of Investor Sentiment

44 Pages Posted: 8 Jul 2000 Last revised: 13 Mar 2022

See all articles by Nicholas Barberis

Nicholas Barberis

National Bureau of Economic Research (NBER); Yale School of Management

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 1997

Abstract

Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements; and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment that is, of how investors form beliefs that is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.

Suggested Citation

Barberis, Nicholas and Barberis, Nicholas and Shleifer, Andrei and Vishny, Robert W., A Model of Investor Sentiment (February 1997). NBER Working Paper No. w5926, Available at SSRN: https://ssrn.com/abstract=225707

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