Download this Paper Open PDF in Browser

The Short of It: Investor Sentiment and Anomalies

37 Pages Posted: 15 Mar 2010 Last revised: 11 Mar 2012

Robert F. Stambaugh

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Jianfeng Yu

Tsinghua University - PBC School of Finance

Yu Yuan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); University of Pennsylvania - Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: October 13, 2011

Abstract

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

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

Robert F. Stambaugh

University of Pennsylvania - The Wharton School ( email )

The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jianfeng Yu (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Yu Yuan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

University of Pennsylvania - Wharton Financial Institutions Center

3733 Spruce Street
Philadelphia, PA 19104-6374
United States

Paper statistics

Downloads
4,678
Rank
1,247
Abstract Views
26,026