 Predictability of stock returns of financial companies and the role of investor sentiment: A multi-country analysisAnjeza Kadilli Journal of Financial Stability, 2015, vol. 21, issue C, 26-45 Abstract: We investigate the role of investor sentiment in predicting annual stock returns of financial companies at the aggregate level and for a large panel of developed countries within two panel regime-switching models, with threshold and with smooth transition between regimes. We find a negative, but insignificant effect of sentiment on future returns during normal times, and a surprisingly positive and strongly significant effect during crisis times. This result could be explained by a differentiated impact of investor sentiment on specific types of stocks, as opposed to a wide horizon of stocks. We find less evidence of predictability for shorter-term financial stock returns. To the best of our knowledge, this study is the first to examine the predictability of financial stock returns within a panel regime-switching framework. Keywords: Predictability of stock returns of financial companies; Investor sentiment; Regime switching; Panel data; Financial crisis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:21:y:2015:i:c:p:26-45 DOI: 10.1016/j.jfs.2015.09.004 Access Statistics for this article Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman More articles in Journal of Financial Stability from Elsevier |
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