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Investor sentiment and the mean-variance relationship: European evidence

Wenzhao Wang

Research in International Business and Finance, 2018, vol. 46, issue C, 227-239

Abstract: This paper investigates the impact of investor sentiment on the mean-variance relationship in 14 European stock markets. Applying three approaches to define investors’ neutrality and determine high and low sentiment periods, we find that individual investors’ increased presence and trading over high-sentiment periods would undermine the risk-return tradeoff. More importantly, we report that investors’ optimism (pessimism) is more determined by their normal sentiment state, represented by the all-period average sentiment level, rather than the neutrality value set in sentiment surveys.

Keywords: Investor sentiment; Mean-variance relationship; Risk-return tradeoff; Volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G41 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:riibaf:v:46:y:2018:i:c:p:227-239