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Re‐examining investor sentiment and stock returns: A replication and extension of Baker and Wurgler (2006)

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  • Kaiwen Leong
  • Dan Li
  • Huailu Li
  • Chuangwei Peng
  • Zhanyu Xu

Abstract

This study replicates and extends Baker and Wurgler's (2006) analysis on investor sentiment's impact on stock returns. We confirm their findings by demonstrating the significant cross‐sectional effect of sentiment in both their original sample (1963–2002) and a new sample (2002–2023). Expanding the scope, we introduce a monthly sentiment measure and analyze the U.S. market (2002–2023) and the Chinese market. Our results show that the predictive strength of sentiment indicators can shift or invert over time. In the Chinese market, sentiment's expected cross‐sectional effects disappear when foundational conditions, such as stock valuation variance, are not met.

Suggested Citation

  • Kaiwen Leong & Dan Li & Huailu Li & Chuangwei Peng & Zhanyu Xu, 2026. "Re‐examining investor sentiment and stock returns: A replication and extension of Baker and Wurgler (2006)," Economic Inquiry, Western Economic Association International, vol. 64(1), pages 88-119, January.
    • Handle: RePEc:bla:ecinqu:v:64:y:2026:i:1:p:88-119
    DOI: 10.1111/ecin.13290
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