37 Pages Posted: 15 Mar 2010 Last revised: 11 Mar 2012
Date Written: October 13, 2011
This study explores the role of investor sentiment in a broad set of anomalies in cross-sectional stock returns. We consider a setting where the presence of market-wide sentiment is combined with the argument that overpricing should be more prevalent than underpricing, due to short-sale impediments. Long-short strategies that exploit the anomalies exhibit profits consistent with this setting. First, each anomaly is stronger - its long-short strategy is more profitable - following high levels of sentiment. Second, the short leg of each strategy is more profitable following high sentiment. Finally, sentiment exhibits no relation to returns on the long legs of the strategies.
Keywords: Investor Sentiment, Anomaly, Short-sale Constraint
Suggested Citation: Suggested Citation
Stambaugh, Robert F. and Yu, Jianfeng and Yuan, Yu, The Short of It: Investor Sentiment and Anomalies (October 13, 2011). Journal of Financial Economics (JFE), Vol. 104, pp 288-302, May 2012; AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1567616