Two-period trading sentiment asset pricing model with information

Chunpeng Yang and Jinfang Li

Economic Modelling, 2014, vol. 36, issue C, 1-7

Abstract: We present a dynamic asset pricing model with investor sentiment and information, which shows that the investor sentiment plays a systematic and important role in the asset prices and the information is gradually incorporated into prices. The model has an analytical solution to the sentiment equilibrium price. We find that sentiment trading quantity not only increases the market liquidity, but also causes the asset prices' overreaction if the intensity of sentiment demand is more than a constant value. Therefore, the continuing overreactions result in a short-term momentum and a long-term reversal. The model could offer a partial explanation to some financial anomalies such as price bubbles, high volatility, asset prices' overreaction and so on.

Keywords: Investor sentiment; Dynamic asset pricing; Overreaction (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:36:y:2014:i:c:p:1-7

DOI: 10.1016/j.econmod.2013.09.018

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