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Global, local, and contagious investor sentiment

Malcolm Baker, Jeffrey Wurgler () and Yu Yuan ()

Journal of Financial Economics, 2012, vol. 104, issue 2, 272-287

Abstract: We construct investor sentiment indices for six major stock markets and decompose them into one global and six local indices. In a validation test, we find that relative sentiment is correlated with the relative prices of dual-listed companies. Global sentiment is a contrarian predictor of country-level returns. Both global and local sentiment are contrarian predictors of the time-series of cross-sectional returns within markets: When sentiment is high, future returns are low on relatively difficult to arbitrage and difficult to value stocks. Private capital flows appear to be one mechanism by which sentiment spreads across markets and forms global sentiment.

Keywords: Sentiment; Return predictability (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G15 G17 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Global, local, and contagious investor sentiment (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:104:y:2012:i:2:p:272-287

DOI: 10.1016/j.jfineco.2011.11.002

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