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Do investors care about noise trader risk?

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Author Info

  • Beer, Francisca

    ()
    (California State University of San Bernadino)

  • Watfa, Mohamad

    ()
    (ITIC Paris)

  • Zouaoui, Mohamed

    ()
    (University of Franche-Comté and LEG-UMR 5118)

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    Abstract

    The link between investor sentiment and asset valuation is at the center of a long-running debate in behavioral finance. Using a new composite sentiment indicator, we show that the conventional risk does not explain the abnormal returns of portfolios most sensitive to the sentiment factor. Our result supports the existence of a sentiment risk valued by financial markets. We also find that the firms more impacted by the sentiment risk correspond to difficult-to-arbitrage and hard-to-value stocks, e.g. small stocks, growth stocks, young stocks, unprofitable stocks, lower dividend-paying stocks, intangible stocks and high volatility stocks.

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    Bibliographic Info

    Article provided by Capco Institute in its journal Journal of Financial Transformation.

    Volume (Year): 35 (2012)
    Issue (Month): ()
    Pages: 49-56

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    Handle: RePEc:ris:jofitr:1527

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    Related research

    Keywords: investor sentiment; asset valuation; behavioral finance; abnormal returns; sentiment risk;

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