The impact of investor sentiment on the German stock market
AbstractThis paper investigates whether investor sentiment can explain stock returns on the German stock market. Based on a principal component analysis, we construct a sentiment indicator that condenses information of several well-known sentiment proxies. We show that this indicator explains the return spread between sentiment stocks and stocks that are not sensitive to sentiment fluctuations. Specifically, stocks that are difficult to arbitrage and hard to value are sensitive to the indicator. However, we do not find much predictive power of sentiment for future stock returns. This is consistent with sentiment being of minor importance on the German stock market that is characterized by a low fraction of retail investors. --
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Bibliographic InfoPaper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 10-03.
Date of creation: 2010
Date of revision:
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More information through EDIRC
Investor Sentiment; Stock Returns; German Stock Market;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-06 (All new papers)
- NEP-EEC-2010-11-06 (European Economics)
- NEP-FMK-2010-11-06 (Financial Markets)
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