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Investor Sentiment and the Cross‐Section of Stock Returns
Author(s) -
BAKER MALCOLM,
WURGLER JEFFREY
Publication year - 2006
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2006.00885.x
Subject(s) - stock (firearms) , volatility (finance) , arbitrage , economics , financial economics , growth stock , dividend , monetary economics , business , econometrics , stock market , finance , stock market bubble , geography , context (archaeology) , archaeology
We study how investor sentiment affects the cross‐section of stock returns. We predict that a wave of investor sentiment has larger effects on securities whose valuations are highly subjective and difficult to arbitrage. Consistent with this prediction, we find that when beginning‐of‐period proxies for sentiment are low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non‐dividend‐paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, on the other hand, these categories of stock earn relatively low subsequent returns.