How Does Investor Sentiment Affect the Cross-Section of Stock Returns?

Journal of Investment Management, Vol. 6, No. 2, Second Quarter 2008

Posted: 12 May 2008 Last revised: 12 Jan 2009

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

John Wang

affiliation not provided to SSRN

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Abstract

Broad waves of investor sentiment should have larger impacts on securities that are more difficult to value and to arbitrage. Consistent with this intuition, we find that when an index of investor sentiment takes low values, small, young, high volatility, unprofitable, non-dividend-paying, extreme growth, and distressed stocks earn relatively higher subsequent returns. When sentiment is high, the aforementioned categories of stocks earn relatively lower subsequent returns.

Keywords: Sentiment, cross-section, prediction, index, behavioral

JEL Classification: G00

Suggested Citation

Baker, Malcolm P. and Wang, John and Wurgler, Jeffrey A., How Does Investor Sentiment Affect the Cross-Section of Stock Returns?. Available at SSRN: https://ssrn.com/abstract=1132356

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Malcolm P. Baker

Harvard Business School ( email )

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HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

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John Wang

affiliation not provided to SSRN ( email )

Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
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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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