Foreign Sentiment

62 Pages Posted: 23 Dec 2019

See all articles by Azi Ben-Rephael

Azi Ben-Rephael

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Xi Dong

Baruch College / City University of New York

Massimo Massa

INSEAD - Finance

Changyun Zhou

Baruch College / City University of New York

Date Written: December 19, 2019

Abstract

We construct a direct measure of U.S. based foreign sentiment using flow shifts between U.S. and international mutual funds. Foreign sentiment predicts return reversals in international markets, while local sentiments predict reversals in local markets. Exploring this segmentation, we find that foreign sentiment predictability is driven by overreaction to non-U.S. local negative news, which increases with the foreignness of a country to U.S. investors. In contrast, non-U.S. local sentiment predictability is not driven by overreaction to the same news. A complementary analysis of the U.S. provides consistent results, suggesting that the U.S. is also not immune to foreign sentiment from international markets. Our findings shed light on a new behavioral explanation for how foreign sentiment is generated, in the spirit of Dumas et al. (2017) “foreign sentiment” concept.

Keywords: sentiment, foreign sentiment, news, flow shifts, international markets

JEL Classification: G10, G11, G15, G40

Suggested Citation

Ben-Rephael, Azi and Dong, Xi and Massa, Massimo and Zhou, Changyun, Foreign Sentiment (December 19, 2019). Available at SSRN: https://ssrn.com/abstract=3506910 or http://dx.doi.org/10.2139/ssrn.3506910

Azi Ben-Rephael

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

111 Washington Avenue
Newark, NJ 07102
United States

HOME PAGE: http://sites.google.com/site/abenreph

Xi Dong

Baruch College / City University of New York ( email )

One Bernard Baruch Way, Box B10-225
New York City, NY 10010
United States

HOME PAGE: http://faculty.baruch.cuny.edu/xdong1/

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Changyun Zhou (Contact Author)

Baruch College / City University of New York ( email )

One Bernard Baruch Way, Box B10-225
New York City, NY 10010
United States
6463123457 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
44
Abstract Views
305
PlumX Metrics