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Investor sentiment, information and asset pricing model

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  • Yang, Chunpeng
  • Li, Jinfang

Abstract

We present an asset pricing model with investor sentiment and information, which shows that the investor sentiment has a systematic and significant impact on the asset price. The equilibrium price's rational term drives the asset price to the rational, and the sentiment term leads to the asset price deviating from it. In our model, the proportion of sentiment investors and the information quality could amplify the sentiment shock on the asset price. Finally, the information is fully incorporated into prices when sentiment investors learn from prices. The model could offer a partial explanation of some financial anomalies: price bubbles, high volatility, asset prices' momentum effect and reversal effect.

Suggested Citation

  • Yang, Chunpeng & Li, Jinfang, 2013. "Investor sentiment, information and asset pricing model," Economic Modelling, Elsevier, vol. 35(C), pages 436-442.
    • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:436-442
    DOI: 10.1016/j.econmod.2013.07.015
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    More about this item

    Keywords

    Investor sentiment; Asset pricing model; Financial anomalies; Market efficiency;
    All these keywords.

    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

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