Sentiment Risk Premia in the Cross-Section of Global Equity and Currency Returns

64 Pages Posted: 24 Sep 2019

See all articles by Massimo Guidolin

Massimo Guidolin

Bocconi University - Department of Finance

Roland Füss

University of St. Gallen - School of Finance

Christian Koeppel

University of St. Gallen

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019

Abstract

This paper introduces a new sentiment-augmented asset pricing model in order to provide a comprehensive understanding of the role of non-fundamental risk factors. We find that news and social media search-based indicators are significantly related to excess returns across different asset classes and markets. 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 negative sentiment for global equity markets. Our results contribute to the explanation of the cross-section of average, international excess equity and foreign exchange returns.

Keywords: sentiment; Cross-section of international equity indices; Currency returns; Fama-MacBeth risk premia estimation

Suggested Citation

Guidolin, Massimo and Füss, Roland and Koeppel, Christian, Sentiment Risk Premia in the Cross-Section of Global Equity and Currency Returns (September 2019). BAFFI CAREFIN Centre Research Paper No. 2019-116. Available at SSRN: https://ssrn.com/abstract=3458302 or http://dx.doi.org/10.2139/ssrn.3458302

Massimo Guidolin (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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

Christian Koeppel

University of St. Gallen ( email )

Langgasse 1
St. Gallen, 9008
Switzerland

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