Abstract

http://ssrn.com/abstract=831487
 
 

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Investor Sentiment and the Mean-Variance Relation


Jianfeng Yu


University of Minnesota

Yu Yuan


Shanghai Advanced Institute of Finance; University of Pennsylvania - Wharton Financial Institutions Center

January 25, 2010

Journal of Financial Economics (JFE), Vol. 100, pp. 367-381, 2011

Abstract:     
This study documents the influence of investor sentiment on the market's mean-variance tradeoff. We find that the stock market's expected excess return is positively related to the market's conditional variance in low-sentiment periods but unrelated to variance in high-sentiment periods. These findings are consistent with sentiment traders who, during the high-sentiment periods, undermine an otherwise positive mean-variance tradeoff. We also find that the negative correlation between returns and contemporaneous volatility innovations is much stronger in the low-sentiment periods. The latter result is consistent with the stronger positive ex ante relation during such periods.

Number of Pages in PDF File: 47

Keywords: investor sentiment, mean-variance relation, volatility

JEL Classification: G12, G14

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Date posted: November 19, 2005 ; Last revised: March 9, 2011

Suggested Citation

Yu, Jianfeng and Yuan, Yu, Investor Sentiment and the Mean-Variance Relation (January 25, 2010). Journal of Financial Economics (JFE), Vol. 100, pp. 367-381, 2011. Available at SSRN: http://ssrn.com/abstract=831487

Contact Information

Jianfeng Yu
University of Minnesota ( email )
321 19th Avenue
Suite 3-122
Minneapolis, MN 55455
United States
HOME PAGE: http://users.cla.umn.edu/~jianfeng/
Yu Yuan (Contact Author)
Shanghai Advanced Institute of Finance ( email )
Shanghai
China
HOME PAGE: http://https://finance.wharton.upenn.edu/~yuanyu
University of Pennsylvania - Wharton Financial Institutions Center ( email )
3733 Spruce Street
Philadelphia, PA 19104-6374
United States
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