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Predictability of stock returns of financial companies and the role of investor sentiment: A multi-country analysis

Listed author(s):
  • Kadilli, Anjeza
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    We investigate the role of investor sentiment in predicting annual stock returns of financial companies at the aggregate level and for a large panel of developed countries within two panel regime-switching models, with threshold and with smooth transition between regimes. We find a negative, but insignificant effect of sentiment on future returns during normal times, and a surprisingly positive and strongly significant effect during crisis times. This result could be explained by a differentiated impact of investor sentiment on specific types of stocks, as opposed to a wide horizon of stocks. We find less evidence of predictability for shorter-term financial stock returns. To the best of our knowledge, this study is the first to examine the predictability of financial stock returns within a panel regime-switching framework.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1572308915000959
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    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 21 (2015)
    Issue (Month): C ()
    Pages: 26-45

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    Handle: RePEc:eee:finsta:v:21:y:2015:i:c:p:26-45
    DOI: 10.1016/j.jfs.2015.09.004
    Contact details of provider: Web page: http://www.elsevier.com/locate/jfstabil

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