Institutional Investor Sentiment and Aggregate Stock Returns

41 Pages Posted: 1 Jul 2020

See all articles by Xiang Gao

Xiang Gao

Shanghai Business School - Research Center of Finance

Chen Gu

Shanghai Business School - Research Center of Finance

Kees Koedijk

TIAS School of Business and Society, Tilburg University

Date Written: May 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 tilting 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 research we add to the large amount of studies that investigate the role and implications of investor sentiment, which has long been viewed as a pure behavioral 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 (May 13, 2020). Available at SSRN: https://ssrn.com/abstract=3599714 or http://dx.doi.org/10.2139/ssrn.3599714

Xiang Gao

Shanghai Business School - Research Center of Finance ( email )

Shanghai
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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