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Multi-period sentiment asset pricing model with information

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  • Li, Jinfang

Abstract

This paper presents a multi-period trading sentiment asset pricing model under asymmetric information. In the model, the rational investor trades on information so that the information is gradually incorporated into prices, whereas the sentiment investor trades on sentiment as if it were information. Moreover, the speed of information incorporated into price becomes faster and faster, while the speed of sentiment factored into price gets slower and slower over time. We find that the existence of sentiment investor makes financial market possible, but decreases market efficiency. The model also offers a partial explanation to the financial anomalies of short-run momentum and long-term reversal.

Suggested Citation

  • Li, Jinfang, 2014. "Multi-period sentiment asset pricing model with information," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 118-130.
    • Handle: RePEc:eee:reveco:v:34:y:2014:i:c:p:118-130
    DOI: 10.1016/j.iref.2014.07.006
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    Cited by:

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    3. Li, Jinfang, 2017. "Investor sentiment, heterogeneous agents and asset pricing model," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 504-512.
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    6. David E. Allen & Michael McAleer & Shelton Peiris & Abhay K. Singh, 2014. "Hedge Fund Portfolio Diversification Strategies Across the GFC," Documentos de Trabajo del ICAE 2014-32, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    7. Dong, Yang & Wen, Shu-hui & Hu, Xiao-bing & Li, Jiang-Cheng, 2020. "Stochastic resonance of drawdown risk in energy market prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    8. Gao, Bin & Liu, Xihua, 2020. "Intraday sentiment and market returns," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 48-62.
    9. Li, Jinfang, 2020. "The momentum and reversal effects of investor sentiment on stock prices," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
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    More about this item

    Keywords

    Investor sentiment; Multi-period trading equilibrium; Momentum effect;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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