Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

BAR - Brazilian Administration Review, v. 14, p. 2, 2017

25 Pages Posted: 25 Sep 2017 Last revised: 11 Dec 2017

See all articles by Gustavo Xavier

Gustavo Xavier

Federal University of Paraiba

Marcio Andre Veras Machado

Federal University of Paraiba (UFPB)

Date Written: September 5, 2017

Abstract

This study examined the relationship between investor sentiment and value anomalies in Brazil. In addition, it analyzed if pricing deviations caused by investors with optimistic views are different from those caused by pessimistic investors. The sample included all non-financial firms listed on the B3 (Brasil, Bolsa, Balcão) stock exchange from July 1999 to June 2014. We used the Principal Component Analysis multivariate technique to capture the component common to four different proxies for investor sentiment. The study empirically tested the index series and its variation on the return series of Long-Short portfolios of 12 anomaly-based strategies. The study found that the measure of the sentiment index had a partial explanatory power for the anomalies only when included in the CAPM. Yet, when using the index sentiment changes as an explanatory variable, the study found a relationship with future returns, robust to all risk factors. Thus, it is possible to relate investor sentiment index to anomaly-based portfolio returns. When analyzing average returns after optimistic and pessimistic periods, the values we found in our empirical test were not statistically significant enough to infer the possible existence of short-sale constraints.

Keywords: investor sentiment index, value anomalies, long-short strategies

Suggested Citation

Xavier, Gustavo and Machado, Marcio Andre Veras, Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market (September 5, 2017). BAR - Brazilian Administration Review, v. 14, p. 2, 2017, Available at SSRN: https://ssrn.com/abstract=3041547

Gustavo Xavier (Contact Author)

Federal University of Paraiba ( email )

João Pessoa, Paraiba 58297-000
Brazil
+55 83 99645-3698 (Phone)

HOME PAGE: http://www.ufpb.br/docente/gxavier

Marcio Andre Veras Machado

Federal University of Paraiba (UFPB) ( email )

Centre for Applied Social Sciences
Graduate School of Management
João Pessoa, Paraiba
Brazil

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