Aggregate Investor Sentiment and Stock Return Synchronicity

69 Pages Posted: 20 Sep 2019

See all articles by Timothy K. Chue

Timothy K. Chue

Hong Kong Polytechnic University

Ferdinand A Gul

Deakin University

G. Mujtaba Mian

Zayed University

Date Written: September 13, 2019

Abstract

We show that the returns of individual stocks become more synchronous with the aggregate market during periods of high investor sentiment. We also document that the effect of sentiment on stock return synchronicity is especially pronounced for small, young, volatile, non-dividend-paying and low-priced stocks. This ‘difference in difference’ suggests that stocks with these characteristics are affected more by sentiment — consistent with previous studies. Our results support the hypothesis that greater constraints on arbitrage and the prevalence of sentiment-driven demand during periods of high sentiment lead to increased comovement among stocks.

Keywords: Aggregate Investor Sentiment; Stock Return Synchronicity; Time-Series Variation; Cross-Sectional Difference

JEL Classification: G12; G14

Suggested Citation

Chue, Timothy K. and Gul, Ferdinand A and Mian, G. Mujtaba, Aggregate Investor Sentiment and Stock Return Synchronicity (September 13, 2019). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3453023

Timothy K. Chue (Contact Author)

Hong Kong Polytechnic University ( email )

School of Accounting & Finance
Hung Hom
Kowloon
Hong Kong
(852) 2766-4995 (Phone)

Ferdinand A Gul

Deakin University ( email )

Australia

G. Mujtaba Mian

Zayed University

P.O. Box 19282
College of Business
Dubai, Dubai 19282
United Arab Emirates
+971568120604 (Phone)

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