Recent work suggests that sentiment traders shift from safer to more speculative stocks when sentiment increases. Exploiting these cross-sectional patterns and changes in share ownership, we find that sentiment metrics capture institutional rather than individual investors' demand shocks. We investigate the underlying economic mechanisms and find that common institutional investment styles (e.g., risk management, momentum trading) explain a significant portion of the relation between institutions and sentiment. THE INVESTOR SENTIMENT LITERATURE TYPICALLY assumes that irrational individual investors are the source of sentiment-based demand shocks that drive prices from value. For instance, the earliest academic article focusing on this issue uses odd-lot trading to identify demand shocks attributed to "public psychology" relative to the more rational views of "New York Stock Exchange members" (Drew et al. (1950)). The assumption that individual investors are responsible for sentiment-induced mispricing has been explicitly repeated in the nearly 70 years that have followed. 1 In fact, many of the traditional proxies for * Luke DeVault is with Clemson University. Richard Sias is with the Eller College of Management, the University of Arizona. Laura Starks is with the McCombs School of Business, University of Texas at Austin. We thank seminar participants at

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Consistent with the well-documented relation between political orientation and psychological traits, hedge funds' political orientations are related to their portfolio decisions. Relative to politically conservative hedge funds, politically liberal hedge funds exhibit a preference for smaller stocks, less mature companies, volatile stocks, unprofitable companies, non-dividend paying companies, and lottery-type securities. Politically liberal hedge funds are also more likely to enter new positions or fully exit existing positions, and make larger adjustments to their U.S. equity market exposure. Our results suggest that psychological characteristics can influence the portfolio decisions of even those at the very top of the financial sophistication ladder.

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