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Investor sentiment and the near-term stock market

Authors
Journal
Journal of Empirical Finance
0927-5398
Publisher
Elsevier
Publication Date
Volume
11
Issue
1
Identifiers
DOI: 10.1016/j.jempfin.2002.12.001
Keywords
  • Investor Sentiment
  • Return Predictability
Disciplines
  • Economics

Abstract

Abstract We investigate investor sentiment and its relation to near-term stock market returns. We find that many commonly cited indirect measures of sentiment are related to direct measures (surveys) of investor sentiment. However, past market returns are also an important determinant of sentiment. Although sentiment levels and changes are strongly correlated with contemporaneous market returns, our tests show that sentiment has little predictive power for near-term future stock returns. Finally, our evidence does not support the conventional wisdom that sentiment primarily affects individual investors and small stocks.

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