Sentiment Issues in Stock Prices and Mutual Funds

Journal of Wealth Management, Vol. 17, No. 4, pp. 43-49, Spring 2015

Robert H. Smith School Research Paper No. RHS 2558458

https://doi.org/10.3905/jwm.2015.17.4.043

Posted: 20 May 2019

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2015

Abstract

Baker and Wurgler [2007] take a “top down” approach to behavioral finance and the stock market. Investor sentiment is taken to be exogenous and the focus is on its empirical effects. Sentiment is measurable and its waves have clearly discernible, important, and regular effects on firms and the overall stock market. Stocks that are hardest to arbitrage or value are most affected by sentiment.

Other studies discussed relate to aspects of investor sentiment and sentiment indexes in Baker and Wurgler [2007] and/or Baker and Wurgler [2006]. Massa and Yadav [2012] analyze whether mutual funds opportunistically exploit market inability to identify sentiment risk. Gasbarro et al. [2012] determine that when fund investor sentiment is high (low), returns are higher for funds with low (high) sentiment-beta portfolios. Irek and Lehnert [2013] use the sentiment index and find that market risk is not a priced factor of expected fund returns when investor sentiment is positive. Sibley et al. [2013] determine that although sentiment is orthogonal to macroeconomic conditions, sentiment indexes have substantial information related to business cycles. Joseph et al. [2011] find that intensity of searches for ticker symbols serves as a valid proxy for investor sentiment, which is useful for forecasting stock returns and trade volume. Huang et al. [2014] determine that the sentiment index likely understates the predictive power of investor sentiment.

Keywords: behavioral finance, investor sentiment, stocks, mutual funds, sentiment risk, sentiment index, sentiment-beta portfolios, market risk

JEL Classification: G2, G23, G28

Suggested Citation

Haslem, John A., Sentiment Issues in Stock Prices and Mutual Funds (January 31, 2015). Journal of Wealth Management, Vol. 17, No. 4, pp. 43-49, Spring 2015 ; Robert H. Smith School Research Paper No. RHS 2558458; https://doi.org/10.3905/jwm.2015.17.4.043. Available at SSRN: https://ssrn.com/abstract=2558458

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742
United States
202-387 2025 (Phone)

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