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Market response to investor sentiment

  • Hengelbrock, Jördis
  • Theissen, Erik
  • Westheide, Christian

This paper reconsiders the effect of investor sentiment on stock prices. Using survey-based sentiment indicators from Germany and the US we confirm previous findings of predictability at intermediate time horizons. The main contribution of our paper is that we also analyze the immediate price reaction to the publication of sentiment indicators. We find that the sign of the immediate price reaction is the same as that of the predictability at intermediate time horizons. This is consistent with sentiment being related to mispricing but is inconsistent with the alternative explanation that sentiment indicators provide information about future expected returns.

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File URL: http://econstor.eu/bitstream/10419/57359/1/64593920X.pdf
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Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2011/02.

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Date of creation: 2011
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Handle: RePEc:zbw:cfswop:201102
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  1. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
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  16. Edwin J. Elton & Martin J. Gruber & Jeffrey A. Busse, 1998. "Do Investors Care About Sentiment?," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-028, New York University, Leonard N. Stern School of Business-.
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