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Firm-level investor sentiment and corporate announcement returns

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  • Mahmoudi, Nader
  • Docherty, Paul
  • Melia, Adrian

Abstract

Behavioural models of investor behaviour propose that sentiment affects investors’ responses to corporate announcements. As beliefs can be cross-sectionally heterogeneous, firm-specific investor sentiment may differ from aggregate levels of investor sentiment. We provide empirical evidence about the explanatory power of both firm- and market-level investor sentiment for corporate announcement returns. We demonstrate empirically that firm-level investor sentiment has marginal explanatory power beyond market-level investor sentiment for corporate announcement returns, turnover and long-run reversals. Previous studies, which focus on market-level investor sentiment measures are likely to have under-stated the economic magnitude of the role that sentiment plays in corporate announcement returns.

Suggested Citation

  • Mahmoudi, Nader & Docherty, Paul & Melia, Adrian, 2022. "Firm-level investor sentiment and corporate announcement returns," Journal of Banking & Finance, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:jbfina:v:144:y:2022:i:c:s0378426622001820
    DOI: 10.1016/j.jbankfin.2022.106586
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    2. Xie, Yutang & Peng, Huan & Feng, Ting, 2024. "Pricing stock index futures with sentiments," Finance Research Letters, Elsevier, vol. 61(C).

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