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CAPM with Sentiment

Author

Listed:
  • Claudio Boido
  • Antonio Fasano

Abstract

We analyse the relationship between large cap returns and sentiment indexes, using a Capital Asset Pricing Model (CAPM) framework. We try to provide a better explanation of asset prices and their deviations from standard theories by means of sentiment indicators, assuming the latter being measures of the very inclination to speculate. Therefore, when sentiment is high, investor demand for speculative investment is high; conversely when it is low, investor demand for speculative investments is low. Unlike other studies, based on proxies, we use the European Sentiment Indicator and its constituents, based on direct surveys, to assess business and consumer confidence.

Suggested Citation

  • Claudio Boido & Antonio Fasano, 2015. "CAPM with Sentiment," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 2, pages 265-288, December.
    • Handle: RePEc:mul:jdp901:doi:10.12831/82216:y:2015:i:2:p:265-288
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    References listed on IDEAS

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