Social Sentiment and Asset Prices

42 Pages Posted: 26 Feb 2019

See all articles by Yao Chen

Yao Chen

Cardiff University - Cardiff Business School

Alok Kumar

University of Miami - School of Business Administration

Chendi Zhang

University of Warwick - Finance Group

Date Written: February 10, 2019

Abstract

This paper shows that shifts in social sentiment affect stock prices. We use the Internet search volume on corporate social responsibility to capture investors’ social sentiment shifts. Stocks with the most positive return sensitivity to social sentiment attract higher institutional demand and earn positive abnormal returns. A trading strategy that exploits the demand-based return predictability generates risk-adjusted returns of 0.46% per month. Further, the return predictability is stronger for stocks headquartered in regions with lower social sentiment. Social sensitivity does not predict firm profits. Overall, these results are consistent with the stock market mispricing stocks’ social sensitivity.

Keywords: corporate social responsibility; investor attention, socially responsible investing, return predictability, social sentiment

JEL Classification: G02, G11, G12

Suggested Citation

Chen, Yao and Kumar, Alok and Zhang, Chendi, Social Sentiment and Asset Prices (February 10, 2019). Available at SSRN: https://ssrn.com/abstract=3331866 or http://dx.doi.org/10.2139/ssrn.3331866

Yao Chen

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Alok Kumar

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Chendi Zhang (Contact Author)

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

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