Market Response to Investor Sentiment

17 Pages Posted: 15 Nov 2013

See all articles by Jördis Hengelbrock

Jördis Hengelbrock

University of Bonn - The Bonn Graduate School of Economics

Erik Theissen

University of Mannheim - Finance Area

Christian Westheide

University of Vienna - Department of Finance; Goethe University Frankfurt - Research Center SAFE

Multiple version iconThere are 2 versions of this paper

Date Written: September/October 2013

Abstract

This paper reconsiders the effect of investor sentiment on stock prices. Our main contribution is that, in addition to the intermediate term return predictability, we also analyze the immediate price reaction to the publication of survey‐based investor sentiment indicators. We find that the sign of the immediate market response is the same as that of the predictability at intermediate time horizons. This is consistent with underreaction to cash flow news or with investor sentiment being related to mispricing. It is inconsistent with the alternative explanations of a rational response to cash flow news or sentiment indicators providing information about future expected returns.

Keywords: investor sentiment, event study, return predictability

Suggested Citation

Hengelbrock, Jördis and Theissen, Erik and Westheide, Christian, Market Response to Investor Sentiment (September/October 2013). Journal of Business Finance & Accounting, Vol. 40, Issue 7-8, pp. 901-917, 2013. Available at SSRN: https://ssrn.com/abstract=2354738 or http://dx.doi.org/10.1111/jbfa.12039

Jördis Hengelbrock (Contact Author)

University of Bonn - The Bonn Graduate School of Economics ( email )

Adenauerallee 24-26
Bonn, D-53113
Germany

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Christian Westheide

University of Vienna - Department of Finance ( email )

Bruennerstrasse 72
Vienna, 1210
Austria

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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