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Persistence of investor sentiment and market mispricing

Han, Xiao, Sakkas, Nikolaos, Danbolt, Jo and Eshraghi, Arman ORCID: 2022. Persistence of investor sentiment and market mispricing. Financial Review 57 (3) , pp. 617-640. 10.1111/fire.12301

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We investigate changes in US market sentiment using structural break analysis over a period of five decades. We show that investor sentiment was trending and nonstationary from 1965 to 2001, a period associated with numerous crashes. Since 2001, sentiment has been substantially more mean reverting, implying the diminished effect of noise investors and their associated mispricing. We illustrate how these changes in sentiment persistence affect equity anomalies and assess the predictive power of sentiment on short-run returns when regime changes are considered. Our findings suggest that the presence of sentiment-driven investors and their market impact is significantly time-variant.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HG Finance
Additional Information: This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License
Publisher: Wiley
ISSN: 1540-6288
Date of First Compliant Deposit: 29 April 2022
Date of Acceptance: 13 April 2022
Last Modified: 06 May 2023 23:58

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