Idiosyncratic Risk, Stock Returns and Investor Sentiment

Tsung-Yu Hsieh (), Huai-I Lee and Ying-Ru Tsai

Asian Economic and Financial Review, 2018, vol. 8, issue 7, 914-924

Abstract: A growing number of studies show that idiosyncratic risk is positively related to stock returns. However, the results of such works are not consistent with each other. Since the weighting function of prospect theory is not linear, this implies that when investors make decisions under uncertainty they use a dual-classification process. This paper thus argues that applying a more appropriate research method could help to clarify the relationship between idiosyncratic risk and stock returns. This paper applies a Panel Smooth Transition Regression model to conduct an empirical study. The results show that idiosyncratic risk is positively related to stock returns, as is investor sentiment. For a given idiosyncratic risk, retail investors with low sentiment require lower stock returns than investors with high sentiment.

Keywords: Investor sentiment; Panel threshold regression; Idiosyncratic risk; Stock returns; Threshold value; Dual-classification process. (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://archive.aessweb.com/index.php/5002/article/view/1720/2561 (application/pdf)
https://archive.aessweb.com/index.php/5002/article/view/1720/3716 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:asi:aeafrj:v:8:y:2018:i:7:p:914-924:id:1720

Access Statistics for this article

More articles in Asian Economic and Financial Review from Asian Economic and Social Society
Bibliographic data for series maintained by Robert Allen ().