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Multi-period sentiment asset pricing model with information

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  • Li, Jinfang

Abstract

This paper presents a multi-period trading sentiment asset pricing model under asymmetric information. In the model, the rational investor trades on information so that the information is gradually incorporated into prices, whereas the sentiment investor trades on sentiment as if it were information. Moreover, the speed of information incorporated into price becomes faster and faster, while the speed of sentiment factored into price gets slower and slower over time. We find that the existence of sentiment investor makes financial market possible, but decreases market efficiency. The model also offers a partial explanation to the financial anomalies of short-run momentum and long-term reversal.

Suggested Citation

  • Li, Jinfang, 2014. "Multi-period sentiment asset pricing model with information," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 118-130.
    • Handle: RePEc:eee:reveco:v:34:y:2014:i:c:p:118-130
    DOI: 10.1016/j.iref.2014.07.006
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    Cited by:

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    3. Gao, Bin & Liu, Xihua, 2020. "Intraday sentiment and market returns," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 48-62.
    4. Li, Jinfang, 2020. "The momentum and reversal effects of investor sentiment on stock prices," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
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    6. David E. Allen & Michael McAleer & Shelton Peiris & Abhay K. Singh, 2014. "Hedge Fund Portfolio Diversification Strategies Across the GFC," Working Papers in Economics 14/27, University of Canterbury, Department of Economics and Finance.
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    8. Londono, Juan M. & Regúlez, Marta & Vázquez, Jesús, 2015. "An alternative view of the US price–dividend ratio dynamics," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 291-307.
    9. Stanislaus Maier-Paape & Andreas Platen & Qiji Jim Zhu, 2019. "A General Framework for Portfolio Theory. Part III: Multi-Period Markets and Modular Approach," Risks, MDPI, vol. 7(2), pages 1-31, June.
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    More about this item

    Keywords

    Investor sentiment; Multi-period trading equilibrium; Momentum effect;
    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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