Investor Sentiment and Stock Return: Do Industries Matter?
- 23 August 2013
- journal article
- research article
- Published by SAGE Publications in Margin: The Journal of Applied Economic Research
- Vol. 7 (3), 315-349
- https://doi.org/10.1177/0973801013491530
Abstract
The basic objective of this article is to evaluate the pricing implications of market-wide investor sentiment risk for cross-sectional return variations of Indian listed companies across industry groups. A multivariate time-series regression approach has been used to examine the impact of sentiment risk on stock return behaviour in the presence of other market-wide systematic risk factors. Our results suggest that the role of sentiment risk in the determination of a cross-section of stock returns is not uniform across the test asset portfolios formed on the basis of size, book-to-market equity, liquidity and momentum characteristics. For all portfolios, the impact of sentiment risk on the cross-section of stock returns behaviour has been disproportionately negative. The effect holds even after controlling for systematic market-wide risk factors. Although the impact of sentiment risk on industry-shorted portfolio returns persists in accordance with the theoretical argument, the cross-sectional variation with respect to different industries has been heavily dependent on the availability of stocks in that particular industry. The commonality of the sentiment effect across industry is not similar, as it is for the aggregate market. The results suggest that generalisation of the hard-to-value and difficult-to-arbitrage argument must be judged with caution, keeping the industry effects in mind. JEL Classification: GI,G12,G14Keywords
This publication has 42 references indexed in Scilit:
- Global, local, and contagious investor sentimentJournal of Financial Economics, 2012
- Investor Sentiment in the Stock MarketJournal of Economic Perspectives, 2007
- Investor Sentiment and the Cross‐Section of Stock ReturnsThe Journal of Finance, 2006
- Investor Sentiment and Asset ValuationThe Journal of Business, 2005
- Market liquidity as a sentiment indicatorJournal of Financial Markets, 2004
- Investor sentiment and the near-term stock marketJournal of Empirical Finance, 2004
- Illiquidity and stock returns: cross-section and time-series effectsJournal of Financial Markets, 2002
- A model of investor sentimentJournal of Financial Economics, 1998
- On Persistence in Mutual Fund PerformanceThe Journal of Finance, 1997
- NoiseThe Journal of Finance, 1986