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Impact of Investor Sentiment on Portfolio

Author

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  • Xiaodong Liu
  • Bing Han
  • Luanfeng Li

Abstract

This study integrated investor sentiment into the binary system of the mean-variance portfolio model, to clarify the method affecting asset pricing through investor sentiment. The theoretical deduction and empirical research demonstrated that, investor sentiment can promote the vertical movement of the minimum variance set. This can lead to effective portfolio drift and subsequent changes in the investor recognized required rate of return. These findings, verified through theoretical conclusions and empirical evidence, explain investors’ extrapolated expectations and their behavior in positive feedback trading.

Suggested Citation

  • Xiaodong Liu & Bing Han & Luanfeng Li, 2023. "Impact of Investor Sentiment on Portfolio," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(3), pages 880-894, February.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:3:p:880-894
    DOI: 10.1080/1540496X.2022.2119805
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