IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Investor sentiment and stock returns: Some international evidence

Listed author(s):
  • Schmeling, Maik

We examine whether consumer confidence - as a proxy for individual investor sentiment - affects expected stock returns internationally in 18 industrialized countries. In line with recent evidence for the U.S., we find that sentiment negatively forecasts aggregate stock market returns on average across countries. When sentiment is high, future stock returns tend to be lower and vice versa. This relation also holds for returns of value stocks, growth stocks, small stocks, and for different forecasting horizons. Finally, we employ a cross-sectional perspective and provide evidence that the impact of sentiment on stock returns is higher for countries which have less market integrity and which are culturally more prone to herd-like behavior and overreaction.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-407.pdf
Download Restriction: no

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-407.

as
in new window

Length: 41 pages
Date of creation: Nov 2008
Handle: RePEc:han:dpaper:dp-407
Contact details of provider: Postal:
Koenigsworther Platz 1, D-30167 Hannover

Phone: (0511) 762-5350
Fax: (0511) 762-5665
Web page: http://www.wiwi.uni-hannover.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
  2. John Y. Campbell & Motohiro Yogo, 2002. "Efficient Tests of Stock Return Predictability," Harvard Institute of Economic Research Working Papers 1972, Harvard - Institute of Economic Research.
  3. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  4. Mark Doms & Norman J. Morin, 2004. "Consumer sentiment, the economy, and the news media," Finance and Economics Discussion Series 2004-51, Board of Governors of the Federal Reserve System (U.S.).
  5. John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
  6. Schmeling, Maik, 2007. "Institutional and individual sentiment: Smart money and noise trader risk?," International Journal of Forecasting, Elsevier, vol. 23(1), pages 127-145.
  7. Eugene F. Fama & Kenneth R. French, "undated". "Value Versus Growth: The International Evidence," CRSP working papers 449, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  8. Lee, Charles & Shleifer, Andrei & Thaler, Richard H., 1991. "Investor Sentiment and the Closed-End Fund Puzzle," Scholarly Articles 27693394, Harvard University Department of Economics.
  9. Black, Fischer, 1986. " Noise," Journal of Finance, American Finance Association, vol. 41(3), pages 529-543, July.
  10. Gregory W. Brown & Michael T. Cliff, 2005. "Investor Sentiment and Asset Valuation," The Journal of Business, University of Chicago Press, vol. 78(2), pages 405-440, March.
  11. Wayne E. Ferson & Sergei Sarkissian & Timothy T. Simin, 2003. "Spurious Regressions in Financial Economics?," Journal of Finance, American Finance Association, vol. 58(4), pages 1393-1414, 08.
  12. Jansen, W. Jos & Nahuis, Niek J., 2003. "The stock market and consumer confidence: European evidence," Economics Letters, Elsevier, vol. 79(1), pages 89-98, April.
  13. Pástor, Luboš & Stambaugh, Robert F., 2007. "Predictive Systems: Living with Imperfect Predictors," CEPR Discussion Papers 6076, C.E.P.R. Discussion Papers.
  14. Brown, Gregory W. & Cliff, Michael T., 2004. "Investor sentiment and the near-term stock market," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 1-27, January.
  15. Menkhoff, Lukas & Rebitzky, Rafael R., 2008. "Investor sentiment in the US-dollar: Longer-term, non-linear orientation on PPP," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 455-467, June.
  16. Yakov Amihud & Clifford Hurvich, 2004. "Predictive Regressions: A Reduced-Bias Estimation Method," Econometrics 0412008, EconWPA.
  17. Andrei Shleifer & Robert W. Vishny, 1995. "The Limits of Arbitrage," NBER Working Papers 5167, National Bureau of Economic Research, Inc.
  18. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
  19. Alok Kumar & Charles M.C. Lee, 2006. "Retail Investor Sentiment and Return Comovements," Journal of Finance, American Finance Association, vol. 61(5), pages 2451-2486, October.
  20. Soeren Hvidkjaer, 2008. "Small Trades and the Cross-Section of Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1123-1151, May.
  21. Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, 08.
  22. Valkanov, Rossen, 2003. "Long-horizon regressions: theoretical results and applications," Journal of Financial Economics, Elsevier, vol. 68(2), pages 201-232, May.
  23. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
  24. Michael Lemmon & Evgenia Portniaguina, 2006. "Consumer Confidence and Asset Prices: Some Empirical Evidence," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1499-1529.
  25. Ang, Andrew & Hodrick, Robert J. & Xing, Yuhang & Zhang, Xiaoyan, 2009. "High idiosyncratic volatility and low returns: International and further U.S. evidence," Journal of Financial Economics, Elsevier, vol. 91(1), pages 1-23, January.
  26. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  27. Swaminathan, Bhaskaran, 1996. "Time-Varying Expected Small Firm Returns and Closed-End Fund Discounts," Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 845-887.
  28. Neal, Robert & Wheatley, Simon M., 1998. "Do Measures of Investor Sentiment Predict Returns?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(04), pages 523-547, December.
  29. Stambaugh, Robert F., 1999. "Predictive regressions," Journal of Financial Economics, Elsevier, vol. 54(3), pages 375-421, December.
  30. Lily Qiu & Ivo Welch, 2004. "Investor Sentiment Measures," NBER Working Papers 10794, National Bureau of Economic Research, Inc.
  31. Ron Kaniel & Gideon Saar & Sheridan Titman, 2008. "Individual Investor Trading and Stock Returns," Journal of Finance, American Finance Association, vol. 63(1), pages 273-310, 02.
  32. Goncalves, Silvia & White, Halbert, 2005. "Bootstrap Standard Error Estimates for Linear Regression," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 970-979, September.
  33. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-218, March.
  34. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-386.
  35. Hong, Harrison & Torous, Walter & Valkanov, Rossen, 2007. "Do industries lead stock markets?," Journal of Financial Economics, Elsevier, vol. 83(2), pages 367-396, February.
  36. Andrew Ang & Geert Bekaert, 2001. "Stock Return Predictability: Is it There?," NBER Working Papers 8207, National Bureau of Economic Research, Inc.
  37. John M. Griffin & Xiuqing Ji & J. Spencer Martin, 2003. "Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole," Journal of Finance, American Finance Association, vol. 58(6), pages 2515-2547, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:han:dpaper:dp-407. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Heidrich, Christian)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.