Do investors care about noise trader risk?
AbstractThe link between investor sentiment and asset valuation is at the centre 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 InfoPaper provided by Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations in its series Working Papers CREGO with number 1111201.
Length: 13 pages
Date of creation: Oct 2011
Date of revision: Dec 2011
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Postal: 2 Bd Gabriel, BP 26611, 21066 Dijon Cedex, France
Postal: Angèle Renaud, CREGO, 2 Bd Gabriel, BP 26611, 21066 Dijon Cedex, France
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-10 (All new papers)
- NEP-CFN-2012-01-10 (Corporate Finance)
- NEP-RMG-2012-01-10 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990.
"Noise Trader Risk in Financial Markets,"
3725552, Harvard University Department of Economics.
- De Bondt, Werner P. M., 1993. "Betting on trends: Intuitive forecasts of financial risk and return," International Journal of Forecasting, Elsevier, vol. 9(3), pages 355-371, November.
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