Relative investor sentiment

Xiang Gao, Kees Koedijk, Thomas Walther and Zhan Wang

International Review of Economics & Finance, 2025, vol. 100, issue C

Abstract: We propose a new investor sentiment index by estimating the differences between moments from realized stock returns and option-implied moments. Validating the Relative Investor Sentiment index, we show that the index is correlated with other proxies, exhibits known patterns of stock market reactions to sentiment shocks, is stronger for hard-to-arbitrage assets, and is complementary to alternative sentiment measures on a monthly and daily horizon. Using our monthly index, we show that momentum strategies perform significantly better during high sentiment periods and even worse in low sentiment periods.

Keywords: Investor sentiment; Option-implied moments; Momentum (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:100:y:2025:i:c:s1059056025002680

DOI: 10.1016/j.iref.2025.104105

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