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Market Response to Investor Sentiment
Author(s) -
Hengelbrock Jördis,
Theissen Erik,
Westheide Christian
Publication year - 2013
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12039
Subject(s) - predictability , cash flow , economics , sign (mathematics) , financial economics , stock (firearms) , rational expectations , stock market , econometrics , monetary economics , finance , mathematical analysis , horse , engineering , biology , physics , quantum mechanics , mechanical engineering , paleontology , mathematics
This paper reconsiders the effect of investor sentiment on stock prices. Our main contribution is that, in addition to the intermediate term return predictability, we also analyze the immediate price reaction to the publication of survey‐based investor sentiment indicators. We find that the sign of the immediate market response is the same as that of the predictability at intermediate time horizons. This is consistent with underreaction to cash flow news or with investor sentiment being related to mispricing. It is inconsistent with the alternative explanations of a rational response to cash flow news or sentiment indicators providing information about future expected returns.