44 Pages Posted: 8 Jul 2000
Date Written: February 1997
Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements; and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment that is, of how investors form beliefs that is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.
Suggested Citation: Suggested Citation
Barberis, Nicholas and Shleifer, Andrei and Vishny, Robert W., A Model of Investor Sentiment (February 1997). NBER Working Paper No. w5926. Available at SSRN: https://ssrn.com/abstract=225707