Institutional Investor Sentiment and Aggregate Stock Returns

Gao X, Gu C, Koedijk K. Institutional investor sentiment and aggregate stock returns. Eur Financ Manag. 2020;1–26. https://doi.org/10.1111/eufm.12292

40 Pages Posted: 1 Jul 2020 Last revised: 18 Jun 2021

See all articles by Xiang Gao

Xiang Gao

Shanghai Business School

Chen Gu

Shanghai Business School - Research Center of Finance

Kees Koedijk

TIAS School of Business and Society, Tilburg University

Date Written: October 13, 2020

Abstract

This paper examines the equity market return predictability of institutional investor sentiment, in comparison to individual investor sentiment. Our findings suggest that institutional traders are informed and that their sentiment helps to tilt stock prices towards the intrinsic value. This is because the sentiment of institutions encompasses news regarding expectations on future cash flows of underlying firms that impounds itself into future price expectations. In this study, we add to the large number of studies that investigate the role and implications of investor sentiment, which has long been viewed as a pure behavioural phenomenon, on market efficiency and price discovery.

Keywords: sentiment, retail traders, institutional investors, cash flows, expectations

JEL Classification: G4, G40, G41, G14

Suggested Citation

Gao, Xiang and Gu, Chen and Koedijk, Kees, Institutional Investor Sentiment and Aggregate Stock Returns (October 13, 2020). Gao X, Gu C, Koedijk K. Institutional investor sentiment and aggregate stock returns. Eur Financ Manag. 2020;1–26. https://doi.org/10.1111/eufm.12292, Available at SSRN: https://ssrn.com/abstract=3599714 or http://dx.doi.org/10.2139/ssrn.3599714

Xiang Gao

Shanghai Business School ( email )

Shanghai Business School
2271 West Zhongshan Road
Shanghai, 200235
China

Chen Gu (Contact Author)

Shanghai Business School - Research Center of Finance ( email )

Shanghai
China

Kees Koedijk

TIAS School of Business and Society, Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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