Investor sentiment and futures market mispricing

Doojin Ryu, Doowon Ryu and Heejin Yang

Finance Research Letters, 2023, vol. 58, issue PC

Abstract: We examine the effects of sentiment on mispricing in a highly liquid index futures market. Investor sentiment significantly affects futures mispricing, supporting its role in explaining price dynamics. Overly optimistic sentiment induces futures market overvaluation whereas pessimistic sentiment loses its explanatory power in undervaluation after controlling for trading activities and macroeconomic factors. The sentiment effect is more pronounced when noisy individual trading prevails.

Keywords: Arbitrage; Index futures; Investor sentiment; Mispricing (search for similar items in EconPapers)
JEL-codes: G13 G14 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323009315

DOI: 10.1016/j.frl.2023.104559

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