Persistence of Investor Sentiment in the Past 50 Years: A Behavioural Perspective

Posted: 3 Dec 2018

See all articles by Caesar Han

Caesar Han

University of Edinburgh

Nikolaos Sakkas

University of Bath

Jo Danbolt

University of Edinburgh Business School

Arman Eshraghi

Cardiff Business School

Date Written: November 26, 2018

Abstract

We investigate changes in market sentiment using structural break analysis over a 50-year period. Investor sentiment behaved like a trending, non-stationary time series from 1965 to 2001, a period associated with numerous bubbles and crashes in the stock market. In the more recent post-2001 period, sentiment has been substantially more mean reverting, implying lower persistence from noise investors and lower associated mispricing. We explore how these changes in sentiment persistence affect well-documented equity anomalies, and assess the predictive power of sentiment on short-run returns when regime changes are considered. Our findings suggest that the presence of sentiment-driven investors and their market impact is significantly time-variant.

Keywords: Market Sentiment, Structural Breaks, Equity Anomalies, Sentiment Predictability, Arbitrage

JEL Classification: G12, G14

Suggested Citation

Han, Caesar and Sakkas, Nikolaos and Danbolt, Jo and Eshraghi, Arman, Persistence of Investor Sentiment in the Past 50 Years: A Behavioural Perspective (November 26, 2018). Available at SSRN: https://ssrn.com/abstract=3290829 or http://dx.doi.org/10.2139/ssrn.3290829

Caesar Han (Contact Author)

University of Edinburgh

Tuvalu

Nikolaos Sakkas

University of Bath

No Address Available

Jo Danbolt

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

Arman Eshraghi

Cardiff Business School ( email )

Colum Drive
Cardiff, CF10 3EU
United Kingdom

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