Investor sentiment and the mean–variance relation☆

Yu, Jianfeng; Yuan, Yu

doi:10.1016/j.jfineco.2010.10.011

Cited by 562 publications

(286 citation statements)

References 87 publications

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“…The premise that investor sentiment has a significant impact on determining stock values has been used in a number of studies that analyze the relationship between returns and an investor sentiment index, producing evidence that sentiment does have an influence on stock prices (Baker & Wurgler, 2006, 2007Baker, Wurgler, & Yuan, 2012;Barberis, Shleifer, & Vishny, 1998;Brown & Cliff, 2004;Delong, Shleifer, Summers, & Waldmann, 1990;Shiller, 2000;Stambaugh et al, 2012;Yu, 2013;Yu & Yuan, 2011).…”

Section: Introductionmentioning

confidence: 99%

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Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Xavier

Machado

2017

BAR, Braz. Adm. Rev.

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This study examined the relationship between investor sentiment and value anomalies in Brazil. In addition, it analyzed if pricing deviations caused by investors with optimistic views are different from those caused by pessimistic investors. The sample included all non-financial firms listed on the B3 (Brasil, Bolsa, Balcão) stock exchange from July 1999 to June 2014. We used the Principal Component Analysis multivariate technique to capture the component common to four different proxies for investor sentiment. The study empirically tested the index series and its variation on the return series of Long-Short portfolios of 12 anomaly-based strategies. The study found that the measure of the sentiment index had a partial explanatory power for the anomalies only when included in the CAPM. Yet, when using the index sentiment changes as an explanatory variable, the study found a relationship with future returns, robust to all risk factors. Thus, it is possible to relate investor sentiment index to anomaly-based portfolio returns. When analyzing average returns after optimistic and pessimistic periods, the values we found in our empirical test were not statistically significant enough to infer the possible existence of short-sale constraints.

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Section: Introductionmentioning

confidence: 99%

“…In this context, a number of studies have found empirical evidence that investor sentiment can possibly contain a vast market component capable of driving the prices of several assets at once towards a specific direction (Baker & Wurgler, 2006, 2007Baker et al, 2012;Brown & Cliff, 2004;Stambaugh et al, 2012;Yu & Yuan, 2011).…”

Section: Introductionmentioning

confidence: 99%

Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Xavier

Machado

2017

BAR, Braz. Adm. Rev.

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“…There is broad agreement that, even after controlling for "rational" influences such as meanvariance (Yu and Yuan, 2011) and Fama-French factors 3 (Xu and Green, 2013), indicators of sentiment do contribute significantly to explaining the time series and cross-sectional behaviour of stock returns in a variety of settings. The preponderance of the evidence from a variety of datasets and measures of sentiment is that unusually high levels of sentiment tend to be associated with increased trading (Brown, 1999), greater volatility (Lee, Jiang and Indro, 2002), and lower returns (Brown and Cliff, 2004;Schmeling, 2009).…”

Section: Introductionmentioning

confidence: 99%

Is investor sentiment contagious? International sentiment and UK equity returns

Hudson

Green

2015

Journal of Behavioral and Experimental Finance

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This paper contributes to a growing body of literature studying investor sentiment. Separate sentiment measures for UK investors and UK institutional investors are constructed from commonly cited sentiment indicators using the first principle component method. We then examine if the sentiment measures can help predict UK equity returns, distinguishing between "turbulent" and "tranquil" periods in the financial markets. We find that sentiment tends to be a more important determinant of returns in the run-up to a crisis than at other times. We also examine if US investor sentiment can help predict UK equity returns, and find that US investor sentiment is highly significant in explaining the UK equity returns.

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“…Similarly, Brandt and Kang (2004) model both the expected returns and conditional variance as latent variables in a multivariate framework and find a negative trade-off. Alternatively, Yu and Yuan (2011) use data on investor sentiment to study the risk-return trade-off. They find that expected returns and conditional variance are positively related in low-sentiment periods, but unrelated during high-sentiment periods.…”

Section: Introductionmentioning

confidence: 99%

Regime switches in the risk–return trade-off

Ghysels

Guérin

Marcellino

2014

Journal of Empirical Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AcknowledgementsWe would like to thank Robert Hodrick and an anonymous referee for helpful comments on a previous version of this paper. The first author acknowledges support of a Marie Curie FP7-PEOPLE-2010-IIF grant.iii AbstractThis paper deals with the estimation of the risk-return trade-off. We use a MIDAS model for the conditional variance and allow for possible switches in the risk-return relation through a Markov-switching specification. We find strong evidence for regime changes in the risk-return relation. This finding is robust to a large range of specifications. In the first regime characterized by low ex-post returns and high volatility, the risk-return relation is reversed, whereas the intuitive positive risk-return trade-off holds in the second regime. The first regime is interpreted as a "flight-to-quality" regime. JEL classification: G10, G12 Bank classification: Economic and statistical models; Financial markets RésuméNotre étude porte sur l'estimation de la relation entre le risque et le rendement. À cette fin, nous estimons cette relation avec un modèle à changements de régimes markoviens en utilisant un modèle MIDAS pour la variance conditionnelle. Les résultats obtenus à partir de nombreuses spécifications militent fortement en faveur de changements de régimes dans la relation entre le risque et le rendement. Dans le premier régime, caractérisé par de faibles rendements ex post et une forte volatilité, la relation entre le risque et le rendement est négative; à l'inverse, la relation de ces deux éléments est positive dans le second régime comme le prévoit le modèle théorique. Le premier régime constitue selon nous un mouvement de report vers la qualité.

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Investor sentiment and the mean–variance relation☆

Cited by 562 publications

References 87 publications

Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Is investor sentiment contagious? International sentiment and UK equity returns

Regime switches in the risk–return trade-off

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