Excess Stock Return Comovements and the Role of Investor Sentiment

25 Pages Posted: 19 Aug 2012

See all articles by Bart Frijns

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: July 18, 2012

Abstract

This paper investigates whether investor sentiment can explain stock return comovements. Our findings demonstrate that since the 1960s, there has been a clear and rapid increase in correlations between international equity markets. Decomposing the equity returns into fundamental and non-fundamental components reveals that the increased correlation is driven by the non-fundamental part. We find that stock return comovements are mainly driven by investor sentiment, which explains the level, variance, and covariance of the non-fundamental component of returns.

Keywords: Behavioral Finance, Excess Comovement, Investor Sentiment, International Equity Markets

JEL Classification: C32, G15

Suggested Citation

Frijns, Bart and Verschoor, Willem F. C. and Zwinkels, Remco C.J., Excess Stock Return Comovements and the Role of Investor Sentiment (July 18, 2012). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=2131797 or http://dx.doi.org/10.2139/ssrn.2131797

Bart Frijns

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Remco C.J. Zwinkels (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
Netherlands
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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