Colorado College Working Paper No. 2010-01
8 Pages Posted: 6 Apr 2010
Date Written: April 5, 2010
Recent literature in behavioral finance has contradicted the notion of efficiency of markets. Greater emphasis on how psychological biases influence both the behavior of investors and asset prices has led to a strong debate among proponents of behavioral finance and neoclassical finance. This has created the need to study how psychology affects financial decisions in households, markets and organizations. This study conducts a pooled ordinary least squares (OLS) model using the fixed effects estimator to investigate the linkage between investor sentiment and stock prices for 35 firms belonging to three different industries over a time period of 56 years, from 1950 to 2005. The findings suggest that investor sentiment does not significantly affect the stock prices in this sample.
Keywords: Market Efficiency, Stochastic Discount Factor Model, Behavioral Finance, Investor Sentiment Function, Stock Prices
JEL Classification: G1, D1
Suggested Citation: Suggested Citation
Paudel, Jayash and Laux, Judith A., A Behavioral Approach to Stock Pricing (April 5, 2010). Colorado College Working Paper No. 2010-01. Available at SSRN: https://ssrn.com/abstract=1584727 or http://dx.doi.org/10.2139/ssrn.1584727