Measuring Investor Sentiment
Annual Review of Financial Economics, Forthcoming
37 Pages Posted: 11 Oct 2017 Last revised: 17 Dec 2017
Date Written: December 16, 2017
Investor sentiment indicates how far an asset value deviates from its economic fundamentals. In this paper, we review various measures of investor sentiment based on market, survey, and text and media data, respectively. There is ample evidence that sentiment can explain returns on stocks that are difficult to value and costly to arbitrage, such as unprofitable stocks, non-dividend-paying stocks, extreme growth stocks, and distressed stocks. However, much remains to be done. We discuss three issues for future research: to aggregate measures over various sources and various time horizons, to link investor sentiment to technical analysis, and to model statistically the evolution of investor sentiment.
Keywords: sentiment, investor optimism, investor survey, textual analysis, technical analysis, predictability, behavioral finance
JEL Classification: C58, G12, G14
Suggested Citation: Suggested Citation