Abstract

http://ssrn.com/abstract=464843
 
 

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Investor Sentiment and the Cross-Section of Stock Returns


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)

November 2003


Abstract:     
We study how investor sentiment affects the cross-section of stock returns. We predict that a wave of investor sentiment has larger effects on securities whose valuations are highly subjective and difficult to arbitrage. Consistent with this prediction, we find that when beginning-of-period proxies for sentiment are low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, on the other hand, these stocks tend to earn relatively low subsequent returns.

Number of Pages in PDF File: 52

Keywords: sentiment, cross-section, arbitrage, asset pricing

JEL Classification: G12, G14

working papers series





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Date posted: November 18, 2003 ; Last revised: January 13, 2009

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffrey, Investor Sentiment and the Cross-Section of Stock Returns (November 2003). Available at SSRN: http://ssrn.com/abstract=464843 or http://dx.doi.org/10.2139/ssrn.464843

Contact Information

Malcolm P. Baker (Contact Author)
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
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