Investor Attention and Sentiment: Risk or Anomaly?

Item Type Monograph (Working Paper)
Abstract

Are stocks' varying sensitivies to changing investor attention and sentiment priced? Employing internet search-based proxies for both, I find novel results that are consistent with theory. Stocks that co-vary negatively with increased investor attention to the stock market outperform in the following months in a behavior consistent with a risk premium. The pricing of co-variation with investor sentiment depends on aggregate mispricing (Baker-Wurgler index), behaving like a risk premium when mispricing is low and like an anomaly when mispricing is high. Sensitivity to both sentiment and attention is strongly related to idiosyncratic volatility and limits to arbitrage: High absolute attention/sentiment loadings are associated with higher volatility, smaller size and other limits to arbitrage. However, the priced attention and sentiment components are clearly distinct from the idiosyncratic risk puzzle and stay significant when controlling for relevant pricing factors and company characteristics. Investor attention is both very robust and highly powerful in pricing a broad variety of test assets. On the other hand, investor sentiment's effect on performance is strongly related to return reversal/momentum and does not add much information on its own.

Authors Bucher, Melk
Language English
Subjects finance
HSG Classification contribution to scientific community
Date July 2017
Publisher SoF-HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Volume 2017/12
Number 12
Number of Pages 89
Contact Email Address melk.bucher@gmail.com
Depositing User Beatrix Kobelt-Glock
Date Deposited 20 Jul 2017 08:52
Last Modified 20 Jul 2017 09:01
URI: https://www.alexandria.unisg.ch/publications/251273

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Bucher, Melk: Investor Attention and Sentiment: Risk or Anomaly? School of Finance Working Paper Series, 2017, 12.

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https://www.alexandria.unisg.ch/id/eprint/251273
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