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Individual stock crowded trades, individual stock investor sentiment and excess returns

Listed author(s):
  • Yang, Chunpeng
  • Zhou, Liyun
Registered author(s):

    Recent behavioral asset pricing models and the popular press suggest that investors may follow similar strategies resulting in crowded equity positions to push prices further away from fundamentals. This paper develops a new approach to measure individual stock crowded trades, and further investigates the joint effects of individual stock crowded trades and individual stock investor sentiment on excess returns. Specifically, our results show that the combined effect of individual stock crowded trades and individual stock investor sentiment on excess returns is positive and significant, which reveals the importance of “anomaly factors” in asset pricing. Furthermore, our results suggest that increasing individual stock buyer-initiated crowded trades will increase excess returns simultaneously; however, increasing individual stock seller-initiated crowded trades will decrease excess returns simultaneously. Collectively, our results highlight the importance of individual stock crowded trades and individual stock investor sentiment on the formation of stock prices.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1062940816300456
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    Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

    Volume (Year): 38 (2016)
    Issue (Month): C ()
    Pages: 39-53

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    Handle: RePEc:eee:ecofin:v:38:y:2016:i:c:p:39-53
    DOI: 10.1016/j.najef.2016.06.001
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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