Do investors care about noise trader risk?

Francisca Beer, Mohamad Watfa and Mohamed Zouaoui ()
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Francisca Beer: California State University of San Bernardino
Mohamad Watfa: ITIC Paris
Mohamed Zouaoui: University of Franche-Comté and LEG-UMR 5118

Working Papers CREGO from Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations

Abstract: The link between investor sentiment and asset valuation is at the centre of a long-running debate in behavioral finance. Using a new composite sentiment indicator, we show that the conventional risk does not explain the abnormal returns of portfolios most sensitive to the sentiment factor. Our result supports the existence of a sentiment risk valued by financial markets. We also find that the firms more impacted by the sentiment risk correspond to difficult to arbitrage and hard to value stocks, e.g. small stocks, growth stocks, young stocks, unprofitable stocks, lower dividend-paying stocks, intangible stocks and high volatility stocks.

Keywords: investor sentiment; asset valuation; behavioral finance; abnormal returns of portfolios. (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2011-10, Revised 2011-12
New Economics Papers: this item is included in nep-cfn and nep-rmg
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