The first author is at the Bonn Graduate School of Economics, University of Bonn. The second author is at the University of Mannheim, the Centre for Financial Research, Cologne, and the Center for Financial Studies, Frankfurt. The third author is at the University of Mannheim and the Center for Financial Studies, Frankfurt. Most of the research was conducted while the last author was at Bonn Graduate School of Economics, University of Bonn. Hengelbrock and Westheide gratefully acknowledge financial support from the German Research Association (DFG). The authors are grateful to Jörg Breitung, Greg Brown, Mike Cliff, Daniel Dorn and Markus Glaser for helpful conversations, and to Norman C. Strong (the associate Editor), an anonymous referee, and participants of the Northern Finance Association 2009 Conference, the Financial Management Association European Meeting 2009, the Annual Meeting of the Spanish Finance Association 2009, the Economics, Management and Finance Doctoral Meeting of Montpellier 2009, the Augustin Cournot Doctoral Days 2009, the Macro/Finance Workshop at the University of Bonn 2009, and the Campus for Finance Research Conference 2010 for valuable suggestions that helped to improve the paper. (Paper received December, 2010; revised version accepted April, 2013).
Market Response to Investor Sentiment
Article first published online: 21 OCT 2013
© 2013 John Wiley & Sons Ltd
Journal of Business Finance & Accounting
Volume 40, Issue 7-8, pages 901–917, September/October 2013
How to Cite
Hengelbrock, J., Theissen, E. and Westheide, C. (2013), Market Response to Investor Sentiment. Journal of Business Finance & Accounting, 40: 901–917. doi: 10.1111/jbfa.12039
- Issue published online: 21 OCT 2013
- Article first published online: 21 OCT 2013
- investor sentiment;
- event study;
- return predictability
This paper reconsiders the effect of investor sentiment on stock prices. Our main contribution is that, in addition to the intermediate term return predictability, we also analyze the immediate price reaction to the publication of survey-based investor sentiment indicators. We find that the sign of the immediate market response is the same as that of the predictability at intermediate time horizons. This is consistent with underreaction to cash flow news or with investor sentiment being related to mispricing. It is inconsistent with the alternative explanations of a rational response to cash flow news or sentiment indicators providing information about future expected returns.