The long of it: Odds that investor sentiment spuriously predicts anomaly returns

Robert F. Stambaugh, Jianfeng Yu, Yu Yuan

Research output: Contribution to journalArticlepeer-review

52 Scopus citations

Abstract

Extremely long odds accompany the chance that spurious-regression bias accounts for investor sentiment's observed role in stock-return anomalies. We replace investor sentiment with a simulated persistent series in regressions reported by Stambaugh, Yu, and Yuan (2012), who find higher long-short anomaly profits following high sentiment, due entirely to the short leg. Among 200 million simulated regressors, we find none that support those conclusions as strongly as investor sentiment. The key is consistency across anomalies. Obtaining just the predicted signs for the regression coefficients across the 11 anomalies examined in the above study occurs only once for every 43 simulated regressors.

Original languageEnglish (US)
Pages (from-to)613-619
Number of pages7
JournalJournal of Financial Economics
Volume114
Issue number3
DOIs
StatePublished - 2014

Bibliographical note

Publisher Copyright:
© 2014 Elsevier B.V.

Keywords

  • Anomalies
  • Investor sentiment
  • Spurious regressors

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