A Model of Investor Sentiment

Nicholas Barberis, Andrei Shleifer and Robert Vishny

Scholarly Articles from Harvard University Department of Economics

Abstract: Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earning announcements; and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment--that is, of how investors form beliefs--that is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.

Date: 1998
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Published in Journal of Financial Economics

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http://dash.harvard.edu/bitstream/handle/1/30747159/w5926.pdf (application/pdf)

Related works:
Journal Article: A model of investor sentiment (1998)
Working Paper: A Model of Investor Sentiment (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:30747159

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