Investor sentiment and stock returns: Some international evidence

Schmeling, Maik

doi:10.1016/j.jempfin.2009.01.002

Cited by 687 publications

(591 citation statements)

References 34 publications

(3 reference statements)

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“…Although there is not a consensus on the influence of investor sentiment in stock markets, several studies have documented that sentiment influences returns and valuation of assets [Fisher and Statman (2000), Brown and Cliff (2005), Wurgler (2006, 2007), Lemmon and Portniaguina (2006), Schmeling (2009)], volatility [Wang, Keswani and Taylor (2006)], the practices of information disclosure and market reaction to announcements [Bergman and Roychowdhury (2008), Mian and Sankaraguruswamy (2008)]. Fisher and Statman (2000) analyzed the relationship between sentiment and future returns as well as the relationship between changes in sentiment and future returns.…”

Section: Behavioural Effectsmentioning

confidence: 99%

“…Thus, several researchers have investigated the effect of investor sentiment in asset pricing patterns, such as: DeBondt and Thaler (1985), DeBondt (1998), Fisher and Statman (2000), Shefrin (2001), Brown and Cliff (2005) Wurgler (2006 and2007), Lemmon and Portniaguina (2006), Wang, Keswani and Taylor (2006) and Schmeling (2009), among others.…”

Section: Introductionmentioning

confidence: 99%

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Does Sentiment Matter for Stock Market Returns? Evidence from a Small European Market

Fernandes

Goncalves

Vieira

2013

Journal of Behavioral Finance

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An important issue in finance is whether noise traders, those who act on information that has no value, influence prices. Recent research indicates that investor sentiment affects the return distribution of a few categories of assets in some stock markets. Other studies also document that US investor sentiment is contagious. This paper investigates whether Consumer Confidence (CC) and the Economic Sentiment Indicator (ESI) -as proxies for investor sentiment -affects Portuguese stock market returns, at aggregate and industry levels, for the period between 1997 to 2009. Moreover the impact of US investor sentiment on Portuguese stock market returns is also addressed. We find several interesting results. First, our results provide evidence that consumer confidence index and ESI are driven by both, rational and irrational factors. Second, ESI is significantly negative related to stock returns. Sentiment negatively forecasts aggregate stock market returns, but not all industry indices returns. Finally, we don't find a contagious effect of US investor sentiment in Portuguese market returns.JEL classification: G10, G11.

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Section: Behavioural Effectsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Does Sentiment Matter for Stock Market Returns? Evidence from a Small European Market

Fernandes

Goncalves

Vieira

2013

Journal of Behavioral Finance

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“…Baker and Wurgler [9] find that the predictability of US investor sentiment is more pronounced for firms that are hard to price and thus difficult to arbitrage (e.g., growth stocks and small stocks). More recently, Schmeling [4] examine whether consumer confidence -as a proxy of individual investor sentiment -affects expected stock returns in 18 industrialized countries. He finds that sentiment negatively forecasts aggregate stock market returns on average across countries.…”

Section: A Brief Review Of Literaturementioning

confidence: 99%

“…As a result, the investment decisions of an average investor are more likely to be swayed by the swings of sentiment in response to, for example, sheer rumors and hearsay, advice of stock brokers or financial gurus, or trend chasing behavior [3]. Recently, Schmeling [4] presents evidence that the impact of on stock returns is higher for countries which have less market integrity and which are culturally more prone to herd-like behavior and overreaction. Second, unlike developed markets and many emerging markets, arbitrage opportunities for the rational investors are extremely limited in Bangladesh stock market.…”

Section: Introductionmentioning

confidence: 99%

Swings in Sentiment and Stock Returns: Evidence from a Frontier Market

Rahman¹,

Shien²,

Sadique³

2013

IJTEF

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Abstract-We investigate the impact of noise trader sentiment on the formation of expected returns and volatility in the context of the frontier stock market of Bangladesh. Empirical results based on a GARCH-in-mean framework show that shifts in investor sentiment are significantly positively correlated with excess market returns. Evidence of this direct impact of changes in sentiment on expected returns is robust across sample periods and alternative measures of sentiment we use in the analysis. In addition, we find that the magnitude of bullish or bearish sentiment changes also exerts an indirect effect on expected returns through its asymmetric influence on the conditional volatility process. Overall, our results suggest that shifts in investor sentiment in the market represent a systematic risk factor that is priced in equilibrium.Index Terms-Investor sentiment, volatility, excess returns. I. INTRODUCTIONWe undertake an empirical investigation into the potential impact of trading behavior of uninformed investors on the stock price dynamics of a frontier stock market. Unlike that of informed investors, trading decisions of uninformed investors are driven by sentiment which is not justified by currently available fundamental information about future cash flows and investment risk.At least since John Maynard Keynes' [1] use of the analogy of a -beauty contest‖ to illustrate investor behavior, economists have pondered the ways in which agent sentiment can play out in the financial markets to move asset price away from fundamental value. Decades later, DeLong, Shleifer, Summers, and Waldmann [2] formalize the role of sentiment in a financial market which is populated by two categories of investors: informed traders who rationally anticipate asset value, and uninformed noise traders who experience waves of optimistic or pessimistic sentiment that is not fully justified by the facts about fundamentals at hand. They demonstrate how, aggregate demand shifts on the part of noise traders (as a result of their acting in concert) triggered by changes in sentiment can induce a systematic risk that is priced in equilibrium. In their model, noise trader sentiment is stochastic and the deviations in price from fundamental value created by changes in sentiment are unpredictable. As a result, now informed investors have to take into account not only fundamental risk of investment but also the risk that investor sentiment becomes even more extreme and prices move further away from fundamental values over the holding period. This additional risk, known as the noise trader risk, renders arbitrage activity risky and prevents risk-averse informed traders from taking fully offsetting positions to correct mispricing induced by noise trading. Consequently, noise trader risk represents an additional source of systematic risk that is priced in the market.So far a number of studies, mostly done in the context of US markets using a variety of sentiment proxies, have largely lent support to the implication of the DSSW model for asset pricin...

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“…They also find that consumer confidence will rise significantly when stock returns (using many different indices) are high, and that consumer confidence may have some predictive power for returns. Schmeling [16] uses consumer confidence to try to predict returns for 18 different countries. He finds that consumer confidence has predictive power up to 6 months, but dies out after that.…”

Section: Literature Reviewmentioning

confidence: 99%

Forecasting Returns with Fundamentals-Removed Investor Sentiment

Stivers¹

2015

IJFS

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Investor sentiment and stock returns: Some international evidence

Cited by 687 publications

References 34 publications

Does Sentiment Matter for Stock Market Returns? Evidence from a Small European Market

Does Sentiment Matter for Stock Market Returns? Evidence from a Small European Market

Swings in Sentiment and Stock Returns: Evidence from a Frontier Market

Forecasting Returns with Fundamentals-Removed Investor Sentiment

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