The Long of It: Odds That Investor Sentiment Spuriously Predicts Anomaly Returns

15 Pages Posted: 11 Jul 2012 Last revised: 6 Nov 2014

Robert F. Stambaugh

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

Jianfeng Yu

University of Minnesota

Yu Yuan

Shanghai Advanced Institute of Finance; University of Pennsylvania - Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: February 16, 2014

Abstract

Extremely long odds accompany the chance that spurious-regression bias accounts for investor sentiment's observed role in stock-return anomalies. We replace investor sentiment with a simulated persistent series in regressions reported by Stambaugh, Yu and Yuan (2012), who find higher long-short anomaly profits following high sentiment, due entirely to the short leg. Among 200 million simulated regressors, we find none that support those conclusions as strongly as investor sentiment. The key is consistency across anomalies. Obtaining just the predicted signs for the regression coefficients across the 11 anomalies examined in the above study occurs only once for every 43 simulated regressors.

Keywords: investor sentiment, anomalies, spurious regressors

JEL Classification: G12, G14, C18

Suggested Citation

Stambaugh, Robert F. and Yu, Jianfeng and Yuan, Yu, The Long of It: Odds That Investor Sentiment Spuriously Predicts Anomaly Returns (February 16, 2014). Journal of Financial Economics (JFE) 114, December 2014, pp 613-619. . Available at SSRN: https://ssrn.com/abstract=2103302 or http://dx.doi.org/10.2139/ssrn.2103302

Robert F. Stambaugh (Contact Author)

University of Pennsylvania - The Wharton School ( email )

The Wharton School, Finance Department
University of Pennsylvania
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United States
215-898-5734 (Phone)
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National Bureau of Economic Research (NBER)

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Jianfeng Yu

University of Minnesota ( email )

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United States

HOME PAGE: http://users.cla.umn.edu/~jianfeng/

Yu Yuan

Shanghai Advanced Institute of Finance ( email )

Shanghai Jiao Tong University
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Shanghai, 200030
China

HOME PAGE: http://www.saif.sjtu.edu.cn/facultylist/yyuan/

University of Pennsylvania - Wharton Financial Institutions Center

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Philadelphia, PA 19104-6374
United States

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