Investor Sentiment, Style Investing, and Momentum

50 Pages Posted: 1 Jun 2022

See all articles by Samar Ashour

Samar Ashour

University of Arkansas

Grace Qing Hao

Department of Finance and Real Estate, The University of Texas at Arlington

Adam Harper

University of South Alabama

Date Written: May 26, 2022

Abstract

Investor sentiment is an important condition for style investing in affecting asset price predictability. We find that style returns have predictive power for future stock returns in high sentiment periods, but not low sentiment periods. The correlation between style returns and stock returns explains the variation in momentum profits in high sentiment periods, but not low sentiment periods. Sentiment has an interaction effect with style returns, but not market returns. While positive style returns predict future stock returns under high sentiment, negative style returns do not. The effect of investor sentiment on style investing is independent of prior market returns.

Keywords: Investor sentiment, Style investing, Comovement, Momentum, Return predictability, Behavioral finance

JEL Classification: G11, G12, G14, D03

Suggested Citation

Ashour, Samar and Hao, Grace Qing and Harper, Adam, Investor Sentiment, Style Investing, and Momentum (May 26, 2022). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4120550

Samar Ashour (Contact Author)

University of Arkansas ( email )

Fayetteville, AR 72701
United States
4795754505 (Phone)

Grace Qing Hao

Department of Finance and Real Estate, The University of Texas at Arlington ( email )

701 S. West Street
Arlington, TX 76019
United States

Adam Harper

University of South Alabama ( email )

307 University Blvd
Mobile, AL 36688
United States

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