Investor Sentiment and the Cross-Section of Stock Returns / Malcolm Baker, Jeffrey Wurgler.

Format:

Book

Author/Creator:

Baker, Malcolm.

Contributor:

National Bureau of Economic Research.

Wurgler, Jeffrey.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10449.

NBER working paper series no. w10449

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

We examine how investor sentiment affects the cross-section of stock returns. Theory predicts that a broad wave of sentiment will disproportionately affect stocks whose valuations are highly subjective and are difficult to arbitrage. We test this prediction by studying how the cross-section of subsequent stock returns varies with proxies for beginning-of-period investor sentiment. When sentiment is low, subsequent returns are relatively high on smaller stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme-growth stocks, and distressed stocks, consistent with an initial underpricing of these stocks. When sentiment is high, on the other hand, these patterns attenuate or fully reverse. The results are consistent with predictions and appear unlikely to reflect an alternative explanation based on compensation for systematic risk.

Notes:

Print version record

April 2004.