Retail Investor Sentiment and the Stock Market
30 Pages Posted: 6 Mar 2008
Date Written: February 29, 2008
Using a unique data set with 18.1 million transactions in bank-issued warrants from the European Warrant Exchange, we compute a retail investor sentiment index. We show that retail investors are contrarian, that retail investor sentiment is an important part of the equity pricing process and that we have a good measure of the sentiment. Moreover, our measure is better than existing measures for our sample period between January 2004 and December 2007. In addition, we show evidence that this data may be used for trading strategies that generate excess returns. As a whole our findings further support a role for retail investor sentiment in the equity pricing process.
Keywords: Investor sentiment, sentiment index, retail investors, option trading
JEL Classification: G11, G14
Suggested Citation: Suggested Citation