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
Date Written: October 13, 2020
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
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