Greed and Fear: The Nature of Sentiment

Giovanni Barone-Adesi, Matteo Pisati and Carlo Sala
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Giovanni Barone-Adesi: Swiss Finance Institute
Matteo Pisati: University of Lugano
Carlo Sala: ESADE Business School and University of Lugano

No 18-45, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Empirical indicators of sentiment are commonly employed in the economic literature while a precise understanding of what is sentiment is still missing. Exploring the links among the most popular proxies of sentiment, fear and uncertainty this paper aims to fi ll this gap. We show how fear and sentiment are specular in their predictive power in relation to the aggregate market and to cross-sectional returns. Finally, we document how sentiment and fear time cross-sectional returns: conditionally on a today's high (low) level of fear we observe a next month high (low) return per unit of risk. The opposite holds for sentiment.

Keywords: sentiment; uncertainty; fear; markets predictability; anomalies (search for similar items in EconPapers)
Pages: 114 pages
Date: 2018-06
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1845

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