Sentiment Metrics and Investor Demand

By Luke DeVault, Richard Sias, Laura T. Starks. Journal of Finance, 2019

126 citations recorded by the source corpus.

Recent work suggests that sentiment traders shift from safer to more speculative stocks when sentiment increases. Given that the market clearing condition requires a buyer for every seller, we exploit these cross-sectional patterns and changes in share ownership to test whether investor sentiment metrics capture institutional or individual investors’ demand shocks. In contrast to theoretical assumptions and common perceptions, we find no evidence that individual investors’ trading is responsible for sentiment-induced demand shocks and mispricing. If the commonly used sentiment metrics truly capture investor sentiment, then institutional investors are the sentiment traders whose demand shocks drive prices from value.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/f9a164b971dfcbba0f5d61b5e93943369e870ddb

How researchers see this paper

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In Accounting

1. P. Muzindutsi
2. Lorraine Rupande
3. Hilary Tinotenda Muguto

In Economics and Econometrics

1. P. Muzindutsi
2. Lorraine Rupande
3. Hilary Tinotenda Muguto

In Finance

1. P. Muzindutsi
2. Lorraine Rupande
3. Hilary Tinotenda Muguto

Citations in the corpus

• Investor sentiment and stock return volatility: Evidence from the Johannesburg Stock Exchange (2019, background): “However, many studies have shown that even rational investors demand speculative stocks during high sentiment periods (Devault et al., 2019; Jang & Kang, 2018).”