Fund sentiment beta and delegated investment

Jian Wang, Shangkun Yi, Xiaoting Wang and Jun Yang

Applied Economics Letters, 2021, vol. 28, issue 11, 902-905

Abstract: This study investigates the impact of fund sentiment beta (FSB) in delegated investment, which provides managed funds a novel grasp for formulating investment strategies. In a unified framework, it is shown that fund managers can exploit investors’ sentiment with strategic choice of FSB: when investors are optimistic (pessimistic), the catering (contrarian) strategy delights investors, who are thus willing to invest more and pay more to fund managers. Funds with high sentiment sensitivity tend to have elevated volatility, which warns against its excessive usage. These results provide theoretical support to many empirical findings in literature.

Date: 2021
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DOI: 10.1080/13504851.2020.1784833

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