Sentiment Risk Premia in the Cross-Section of Global Equity

64 Pages Posted: 4 Jun 2018 Last revised: 21 Jan 2020

See all articles by Roland Füss

Roland Füss

University of St. Gallen - School of Finance

Massimo Guidolin

Bocconi University - Department of Finance

Christian Koeppel

University of St. Gallen

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2019

Abstract

This paper introduces a new sentiment-augmented asset pricing model in order to pro- vide a comprehensive understanding of the role of this new type of risk factors. We find that news and social media search-based indicators are significantly related to international stocks’ excess returns. Adding sentiment factors to both, classical and more recent pricing models, leads to a significant increase in model performance. Following the Fama-MacBeth procedure, our modified pricing model obtains positive estimates of the risk premium for positive sentiment, while being negative for negative sentiment. Our results contribute to the explanation of the cross-section of average, international excess returns and are robust for fundamental asset pricing factors, idiosyncratic volatility, skewness, and kurtosis.

Keywords: asset pricing; behavioral finance; financial markets; investor sentiment; sentiment risk premium

JEL Classification: C53, G12, G41

Suggested Citation

Füss, Roland and Guidolin, Massimo and Koeppel, Christian, Sentiment Risk Premia in the Cross-Section of Global Equity (December 20, 2019). University of St.Gallen, School of Finance Research Paper No. 2018/17. Available at SSRN: https://ssrn.com/abstract=3186708 or http://dx.doi.org/10.2139/ssrn.3186708

Roland Füss

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Massimo Guidolin

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Christian Koeppel (Contact Author)

University of St. Gallen ( email )

Langgasse 1
St. Gallen, 9008
Switzerland

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