Abstract
We provide evidence that the stock market response to macroeconomic news weakens in times of high investor sentiment. The reaction to macroeconomic information is 50% weaker in times of elevated bullish investor sentiment, relative to periods of low sentiment. This dampening effect holds for both good and bad macroeconomic news. Investor sentiment seems to hinder the incorporation of public information into asset prices. Our findings shed new light on how investor sentiment affects the link between fundamentals and security prices.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1412-1426 |
| Number of pages | 15 |
| Journal | Journal of Futures Markets |
| Volume | 41 |
| Issue number | 9 |
| DOIs | |
| State | Published - Sep 2021 |
Bibliographical note
Funding Information:The views expressed in this paper are our own and are based on independent research and do not necessarily reflect the views of the Office of the Comptroller of the Currency, the US Department of the Treasury, or any federal agency, nor has the paper been formally reviewed by any individuals within the Office of the Comptroller of the Currency, the US Department of the Treasury, or any federal agency. The authors take responsibility for any errors. Chen Gu acknowledges the financial support from the Shanghai Pujiang Program (19PJC077) and the National Natural Science Foundation of China (No. 71973018).
Publisher Copyright:
© 2021 Wiley Periodicals LLC
Keywords
- intraday data
- investor sentiment
- macroeconomic announcements
- market efficiency