Investor sentiment, stock mispricing, and long-term growth expectations

Kotaro Miwa

Research in International Business and Finance, 2016, vol. 36, issue C, 414-423

Abstract: I analyze whether or not market-wide investor sentiment induces stock mispricing, by affecting the boldness of predictions of firms’ long-term earnings growth. I predict that bullish market-wide sentiment induces investors to aggressively separate firms with high growth futures from others, and that this excessive boldness results in a high level of mispricing. Consistent with my prediction, I observe an excessively large dispersion in consensus growth forecasts when proxies for investor sentiment are high at the beginning of the period. Furthermore, stocks with higher-predicted growth experience more negative forecast revisions and lower subsequent stock returns, especially following periods of high investor sentiment.

Keywords: Investor sentiment; Long-term earnings growth forecast; Cross-sectional stock return; Stock mispricing (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:36:y:2016:i:c:p:414-423

DOI: 10.1016/j.ribaf.2015.10.003

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