TY - JOUR
T1 - Investor sentiment and the mean-variance relation
AU - Yu, Jianfeng
AU - Yuan, Yu
PY - 2011/5
Y1 - 2011/5
N2 - This study shows the influence of investor sentiment on the market's mean-variance tradeoff. We find that the stock market's expected excess return is positively related to the market's conditional variance in low-sentiment periods but unrelated to variance in high-sentiment periods. These findings are consistent with sentiment traders who, during the high-sentiment periods, undermine an otherwise positive mean-variance tradeoff. We also find that the negative correlation between returns and contemporaneous volatility innovations is much stronger in the low-sentiment periods. The latter result is consistent with the stronger positive ex ante relation during such periods.
AB - This study shows the influence of investor sentiment on the market's mean-variance tradeoff. We find that the stock market's expected excess return is positively related to the market's conditional variance in low-sentiment periods but unrelated to variance in high-sentiment periods. These findings are consistent with sentiment traders who, during the high-sentiment periods, undermine an otherwise positive mean-variance tradeoff. We also find that the negative correlation between returns and contemporaneous volatility innovations is much stronger in the low-sentiment periods. The latter result is consistent with the stronger positive ex ante relation during such periods.
KW - Investor sentiment
KW - Mean-variance relation
KW - Risk-return tradeoff
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=79952455509&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=79952455509&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2010.10.011
DO - 10.1016/j.jfineco.2010.10.011
M3 - Article
AN - SCOPUS:79952455509
SN - 0304-405X
VL - 100
SP - 367
EP - 381
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -