Market states, sentiment, and momentum in the corporate bond market

Li, Lifang; Galvani, Valentina

doi:10.1016/j.jbankfin.2018.02.007

Cited by 22 publications

(10 citation statements)

References 32 publications

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“…Cooper et al (2004) state that the profitability of a momentum strategy increases following an UP market state period. We follow the definitions of the market state proposed by Cooper et al (2004) and Li and Galvani (2018). For the first definition, we state that the market is in an UP (DOWN) state if the previous 3‐year market return is positive (negative), as proposed by Cooper et al (2004).…”

Section: Empirical Results and Analysismentioning

confidence: 99%

“…For the first definition, we state that the market is in an UP (DOWN) state if the previous 3‐year market return is positive (negative), as proposed by Cooper et al (2004). For the definition by Li and Galvani (2018), a market is in an UP (DOWN) state if the last 1‐year market return is equal to or larger (smaller) than the average equally weighted return of the market in the sample period.…”

Section: Empirical Results and Analysismentioning

confidence: 99%

See 1 more Smart Citation

Fundamental index aligned and excess market return predictability

Ze-To

2021

Journal of Forecasting

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We document the significant predictive power of an aligned fundamental index for aggregate excess stock market returns. The index incorporates the major financial indicators used by Piotroski (2000) and eliminates the idiosyncratic error components of individual indicators using the partial least squares approach modified by Kelly and Pruitt (2015). Our proposed fundamental index outperforms the aggregate financial score index of Piotroski (2000) and the equally weighted financial index in predicting returns for both in‐sample and out‐of‐sample tests. The aligned financial index also provides significant forecasting power for future market returns after controlling for the major economic variables. The proposed index persistently exhibits strong return forecasting power for longer time horizons and generates higher certainty equivalent gain for risk‐averse investors. The positive relations between the proposed index and future returns of portfolios sorted by momentum, book‐to‐market ratio, and company size are all significant.

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Section: Empirical Results and Analysismentioning

confidence: 99%

Section: Empirical Results and Analysismentioning

confidence: 99%

Fundamental index aligned and excess market return predictability

Ze-To

2021

Journal of Forecasting

View full text Add to dashboard Cite

show abstract

“…Gao and Yang (2017) provide support for the notion that the predictive power of sentiment is more significant in high‐sentiment periods. Prior studies also show that investor sentiment affects stock returns, asset price discovery, bond momentum gains, and corporate risk‐taking behaviour differently during high‐ and low‐sentiment periods (Habib & Hasan, 2017; Li & Galvani, 2018; Lin, Chou, & Wang, 2018; Shen, Yu, & Zhao, 2017). These findings imply that the sentiment‐driven pricing of earnings MS document might differ greatly in high‐ and low‐sentiment periods.…”

Section: Introductionmentioning

confidence: 99%

Relationship between investor sentiment and earnings news in high‐ and low‐sentiment periods

Tian

Ouyang

et al. 2020

Int. J Fin Econ

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Using the Chinese equity market as the testing venue, this study explores how investor sentiment affects the immediate reaction of stock prices to earnings news in high‐ and low‐sentiment periods. Our key finding is that the sentiment‐driven pricing of earnings will differ between the two periods. Specifically, during high‐sentiment (low‐sentiment) periods, the stock price sensitivity to good (bad) earnings news increases (decreases) with investor sentiment, whereas the stock price sensitivity to bad (good) earnings news is unrelated to investor sentiment. Additionally, we find that the effect of sentiment is more pronounced for young, high volatility, growth and distressed stocks. However, contrary to the U.S. evidence, our results show that small stocks are not always more exposed to sentiment. Further analysis of the role of short‐sales constraints in the sensitivity of stock prices to bad earnings news implies that short sales can enhance informational efficiency.

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“…The second explanation relies on behavioural biases and market inefficiency (see for example: Barberis, Shleifer, & Vishny, 1998; Daniel, Hirshleifer, & Subrahmanyam, 1998; Li & Galvani, 2018; Stambaugh, Yu, & Yuan, 2012). For instance Stambaugh et al (2012) studied the relationship between the momentum and investor sentiment.…”

Section: Introductionmentioning

confidence: 99%

“…They concluded that the profitability of momentum strategy is related to periods of high levels of the BW sentiment index. Li and Galvani (2018) found that sentiment has a little predictive power for future momentum returns in the corporate bond market.…”

Section: Introductionmentioning

confidence: 99%

Momentum profits: Fundamentals or time varying unsystematic risk

BenMabrouk

Souayeh²

2020

Int. J Fin Econ

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This paper examines how fundamentals and time varying unsystematic risk can explore the origins of momentum strategies. Our data encompasses the monthly returns of listed stocks on the NASDAQ 100 index from 2002 to 2016. The results indicate that winners and losers are slanted towards small‐capitalization stocks with high systematic risk. Whereas only winners have growth and value the characteristics. Additionally, the results from the E‐GARCH‐M indicate that the speed of adjustment to volatility shocks is not the same for winners and losers. In fact, we find that the loser portfolios take a longer time to absorb the shocks and are more sensitive to bad than good Innovations. Finally, the results postulate that Momentum is significantly associated to time varying unsystematic risk, specifically for the (3/3) Strategy.

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Market states, sentiment, and momentum in the corporate bond market

Cited by 22 publications

References 32 publications

Fundamental index aligned and excess market return predictability

Fundamental index aligned and excess market return predictability

Relationship between investor sentiment and earnings news in high‐ and low‐sentiment periods

Momentum profits: Fundamentals or time varying unsystematic risk

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