Do investors care about noise trader risk?

Francisca Beer (), Mohamad Watfa () and Mohamed Zouaoui ()
Additional contact information
Francisca Beer: California State University of San Bernadino, http://www.csusb.edu/
Mohamad Watfa: ITIC Paris, http://www.iticparis.com/
Mohamed Zouaoui: University of Franche-Comté and LEG-UMR 5118, http://www.univ-fcomte.fr

Journal of Financial Transformation, 2012, vol. 35, 49-56

Abstract: The link between investor sentiment and asset valuation is at the center of a long-running debate in behavioral finance. Using a new composite sentiment indicator, we show that the conventional risk does not explain the abnormal returns of portfolios most sensitive to the sentiment factor. Our result supports the existence of a sentiment risk valued by financial markets. We also find that the firms more impacted by the sentiment risk correspond to difficult-to-arbitrage and hard-to-value stocks, e.g. small stocks, growth stocks, young stocks, unprofitable stocks, lower dividend-paying stocks, intangible stocks and high volatility stocks.

Keywords: investor sentiment; asset valuation; behavioral finance; abnormal returns; sentiment risk (search for similar items in EconPapers)
JEL-codes: G11 G12 G24 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1527

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