Investor Sentiment as Conditioning Information in Asset Pricing
39 Pages Posted: 21 Aug 2008 Last revised: 20 Apr 2011
Date Written: August 21, 2008
This paper assesses whether incorporating investor sentiment as conditioning information in asset pricing models helps capture the impacts of the size, value, liquidity and momentum effects on risk-adjusted returns of individual stocks. We use survey sentiment measures and a composite index as proxies for investor sentiment. In our conditional framework, the size effect becomes less important in the conditional CAPM and is no longer significant in all the other models examined. Furthermore, the conditional models often capture the value, liquidity and momentum effects.
Keywords: Anomalies, Asset pricing, Conditioning information, Sentiment
JEL Classification: G12, G14
Suggested Citation: Suggested Citation