CAPM with Sentiment

Claudio Boido and Antonio Fasano

Journal of Financial Management, Markets and Institutions, 2015, issue 2, 265-288

Abstract: We analyse the relationship between large cap returns and sentiment indexes, using a Capital Asset Pricing Model (CAPM) framework. We try to provide a better explanation of asset prices and their deviations from standard theories by means of sentiment indicators, assuming the latter being measures of the very inclination to speculate. Therefore, when sentiment is high, investor demand for speculative investment is high; conversely when it is low, investor demand for speculative investments is low. Unlike other studies, based on proxies, we use the European Sentiment Indicator and its constituents, based on direct surveys, to assess business and consumer confidence.

Keywords: Investor Sentiment; Stock Pricing; Financial Anomalies; Behavioural Finance; CAPM. (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mul:jdp901:doi:10.12831/82216:y:2015:i:2:p:265-288

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