This study investigates the impact of investor sentiment on stock returns and trading volume, challenging the efficient market hypothesis. Using CRSP data from May 1998 to March 2022, methods like Fama-MacBeth and quantile regression were applied to analyze sentiment indicators such as the VIX, AAII Investor Sentiment Survey, Consumer Confidence, and Baker-Wurgler Index. The findings reveal that investor sentiment significantly influences stock returns and trading volume, especially during uncertain times. Sentiment also affects financial metrics like SMB, HML, RMW, and CMA uniquely. This research provides new insights and practical implications for investors and analysts, emphasizing the importance of considering sentiment in investment strategies to better anticipate market movements and manage risks

Lis, Szymon; Ślepaczuk, Robert; Sakowski, Paweł

This study investigates the impact of investor sentiment on stock returns and trading volume, challenging the efficient market hypothesis. Using CRSP data from May 1998 to March 2022, methods like Fama-MacBeth and quantile regression were applied to analyze sentiment indicators such as the VIX, AAII Investor Sentiment Survey, Consumer Confidence, and Baker-Wurgler Index. The findings reveal that investor sentiment significantly influences stock returns and trading volume, especially during uncertain times. Sentiment also affects financial metrics like SMB, HML, RMW, and CMA uniquely. This research provides new insights and practical implications for investors and analysts, emphasizing the importance of considering sentiment in investment strategies to better anticipate market movements and manage risks

Szymon Lis (), Robert Ślepaczuk and Paweł Sakowski
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Szymon Lis: University of Warsaw, Faculty of Economic Sciences, Department of Quantitative Finance
Paweł Sakowski: University of Warsaw, Faculty of Economic Sciences, Department of Quantitative Finance

No 2024-18, Working Papers from Faculty of Economic Sciences, University of Warsaw

Keywords: market sentiment; factor models; stock returns; EMH; Fama-MacBeth model; quantile regression; Baker-Wurgler index; VIX index (search for similar items in EconPapers)
JEL-codes: C12 C14 C22 C52 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2024
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