Investor Attention and Sentiment: Risk or Anomaly?
Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2017-07
Author(s)
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.
Language
English
HSG Classification
contribution to scientific community
Publisher
SoF-HSG
Publisher place
St. Gallen
Volume
2017/12
Number
12
Pages
89
Subject(s)
Contact Email Address
melk.bucher@gmail.com
Eprints ID
251273
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