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How congruent sentiment indices are to real investor beliefs?

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  • Yuandong Mu
  • Kangyu Ren
  • Qian Li

Abstract

We use survey data to investigate the relationship between widely used sentiment indices and real investor beliefs. We find a strikingly low congruency between sentiment indices and investor expectations of future stock returns. More importantly, the sentiment indices are found to have poor abilities to capture investor overoptimism, attenuating the nexus between sentiment indices and mispricing which was employed extensively by previous literature. By cautiously examining the relations between sentiment indices (survey expectations) and model-based expected returns, we are keenly aware that sentiment indices and survey expectations probably correspond to distinct classes of sentimental investors.

Suggested Citation

  • Yuandong Mu & Kangyu Ren & Qian Li, 2025. "How congruent sentiment indices are to real investor beliefs?," Applied Economics Letters, Taylor & Francis Journals, vol. 32(9), pages 1239-1245, May.
    • Handle: RePEc:taf:apeclt:v:32:y:2025:i:9:p:1239-1245
    DOI: 10.1080/13504851.2024.2302884
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