Sentiment-return relation and stock price synchronicity: Firm-level versus market-level sentiment

Karam Kim, Jonathan Batten and Doojin Ryu

The Quarterly Review of Economics and Finance, 2025, vol. 102, issue C

Abstract: This study examines how investor sentiment affects stock returns under different levels of stock price synchronicity. Firm-level (market-level) sentiment has a stronger impact on low- (high-) synchronicity stocks. While firm-level sentiment effects remain stable over time, market-level sentiment effects intensify across all stocks during the pandemic. Uninformed investors consistently rely more on firm-level sentiment when trading low-synchronicity stocks but shift to market-level sentiment when deciding on their participation during the pandemic. These results remain robust after controlling firm size and calendar effects, and applying an alternative market-level sentiment measure.

Keywords: Firm-level sentiment; Information environment; Market-level sentiment; Stock price synchronicity; Stock returns (search for similar items in EconPapers)
JEL-codes: G14 G30 G40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:102:y:2025:i:c:s1062976925000481

DOI: 10.1016/j.qref.2025.102007

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