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

27 Pages Posted: 26 Jun 2008 Last revised: 12 Jan 2009

John Wang

affiliation not provided to SSRN

Jeffrey Wurgler

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

Malcolm P. Baker

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 2007

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

Wang, John and Wurgler, Jeffrey and Baker, Malcolm P., How Does Investor Sentiment Affect the Cross-Section of Stock Returns? (February 2007). Available at SSRN: https://ssrn.com/abstract=1151310 or http://dx.doi.org/10.2139/ssrn.1151310

John Wang

affiliation not provided to SSRN

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

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

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