Investor sentiment and asset prices: Evidence from the ex-day

Shishir Paudel, Silveri, Sabatino (Dino) and Mark Wu

Journal of Banking & Finance, 2022, vol. 139, issue C

Abstract: We use the ex-dividend day setting to examine the association between investor sentiment and asset prices. While the dividend on the ex-day conveys no new information, we find that ex-day prices behave differently during high- versus low-sentiment periods. We show that high investor sentiment is associated with a reduction in the ex-day price-drop of about eight percent of the dividend amount. The magnitude of this association is comparable to those of traditional ex-day explanations. In addition, for stocks that are more sensitive to investor sentiment the effect is significantly larger than traditional ex-day explanations. Overall, our results contribute to the measurement of investor sentiment's relative importance to asset prices and narrow the gap between the theoretically predicted versus the empirically observed ex-day stock price.

Keywords: Investor sentiment; Ex-dividend day; Price-drop ratio; Tax; Transaction cost (search for similar items in EconPapers)
JEL-codes: G12 G14 G35 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:139:y:2022:i:c:s0378426622000917

DOI: 10.1016/j.jbankfin.2022.106492

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