Country-Specific Sentiment and Security Prices

Abstract

I study the effect of country-specific sentiment on security prices. I provide evidence that a country’s popularity among Americans affects U.S. investors’ demand for securities from that country and causes security prices to deviate from their fundamental values. Moreover, I find that country popularity is positively associated with the intensity of U.S. cross-border mergers and acquisitions activity, suggesting that country popularity also affects firms’ investment decisions.

Keywords: Investor Sentiment, Country Popularity

JEL Classification: G12, G14, G15