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Excess stock return comovements and the role of investor sentiment

Bart Frijns (), Willem Verschoor () and Remco Zwinkels ()

Journal of International Financial Markets, Institutions and Money, 2017, vol. 49, issue C, 74-87

Abstract: This paper investigates whether investor sentiment can explain stock return comovements. Our findings demonstrate that since the 1960s, there has been a clear and rapid increase in correlations between international equity markets. Decomposing the equity returns into fundamental and non-fundamental components reveals that the increased correlation is driven by the non-fundamental part. We find that stock return comovements are mainly driven by investor sentiment, which explains the level, variance, and covariance of the non-fundamental component of returns.

Keywords: Excess comovement; Investor sentiment; International equity markets (search for similar items in EconPapers)
JEL-codes: C32 G15 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:49:y:2017:i:c:p:74-87

DOI: 10.1016/j.intfin.2017.02.005

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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