Investor Sentiment and Market Anomalies

24 Pages Posted: 12 Nov 2010 Last revised: 16 Nov 2010

See all articles by TaeHyuk Kim

TaeHyuk Kim

Pusan National University

Aejin Ha

Pusan National University

Date Written: August 23, 2010

Abstract

The traditional view on stock return proposes that stock price changes due to systematic changes in the fundamental value of the firm. But recent papers report that investor sentiment plays an important role in determining prices especially for the small cap stocks. This paper attempts to investigate into the effect of investor sentiment on the price of stocks traded in the Korean stock market. We constructed the sentiment index using principal component of ten sentiment variables. Our findings are as follows; 1) when we employ Fama-French-Carhart four factor (market, size, book/market value, and momentum) model, sentiment effect for the small cap portfolio still appears. 2) after controling market anomaly factors and price effects, returns of low price portfolio are significantly affected by investor sentiment. 3) after controling market anomaly factors and value effects, returns of the portfolio with low book/market value are affected by investor sentiment. These results imply that investor sentiment systematically affects the stock price of Korean firms with small cap, low price, and low book/market value.

Keywords: Investor sentiment; Anomalies; Asset pricing model

JEL Classification: Behavioral Finance

Suggested Citation

Kim, TaeHyuk and Ha, Aejin, Investor Sentiment and Market Anomalies (August 23, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1663649 or http://dx.doi.org/10.2139/ssrn.1663649

TaeHyuk Kim (Contact Author)

Pusan National University ( email )

mulgeumup beomyeli
Pusan 609-735, 50612
Korea, Republic of (South Korea)

Aejin Ha

Pusan National University ( email )

mulgeumup beomyeli
Pusan 609-735, 50612
Korea, Republic of (South Korea)

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