Retail Investor Sentiment and the Stock Market

30 Pages Posted: 6 Mar 2008  

Matthias Burghardt

University of Karlsruhe - Institute of Information Systems and Management

Marcel Czink

University of Karlsruhe - Institute of Information Systems and Management

Ryan Riordan

Smith School of Business

Date Written: February 29, 2008

Abstract

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

Burghardt, Matthias and Czink, Marcel and Riordan, Ryan, Retail Investor Sentiment and the Stock Market (February 29, 2008). Available at SSRN: https://ssrn.com/abstract=1100038 or http://dx.doi.org/10.2139/ssrn.1100038

Matthias Burghardt (Contact Author)

University of Karlsruhe - Institute of Information Systems and Management ( email )

Englerstr 14
Karlsruhe, 76131
Germany

Marcel Czink

University of Karlsruhe - Institute of Information Systems and Management ( email )

Englerstr 14
Karlsruhe, 76131
Germany

Ryan Riordan

Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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