Investor sentiment, bull and bear markets and stock returns

Dorsaf Ben Aissia and Nizar Neffati

International Journal of Banking, Accounting and Finance, 2022, vol. 13, issue 1, 115-144

Abstract: This article examines the relevance of investor sentiment in explaining market and cross-sectional returns. It considers many sentiment measures based on market, survey and text data and proposes a new composite market sentiment index. Using the US data (S%P 500, Dow Jones and NASDAQ indexes) over July 1965-December 2019, the paper shows that the effect of investor sentiment on market stocks returns is more pronounced when aggregating different sentiment measures. It also identifies turning points in investor sentiment and studies whether bull and bear cycles in sentiment metrics explain long-short portfolio returns sorted by market capitalisation, firm age, total risk, research and development, book-to-market, sales growth, among others.

Keywords: investor sentiment; aggregation approaches; bull markets; bear markets; sentiment metrics. (search for similar items in EconPapers)
Date: 2022
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