The short of it: Investor sentiment and anomalies

Robert F. Stambaugh; Jianfeng Yu; Yu Yuan

doi:10.1016/j.jfineco.2011.12.001

The short of it: Investor sentiment and anomalies

Robert F. Stambaugh, Jianfeng Yu, Yu Yuan

Research output: Contribution to journal › Article › peer-review

922 Scopus citations

Abstract

This study explores the role of investor sentiment in a broad set of anomalies in cross-sectional stock returns. We consider a setting in which the presence of market-wide sentiment is combined with the argument that overpricing should be more prevalent than underpricing, due to short-sale impediments. Long-short strategies that exploit the anomalies exhibit profits consistent with this setting. First, each anomaly is stronger (its long-short strategy is more profitable) following high levels of sentiment. Second, the short leg of each strategy is more profitable following high sentiment. Finally, sentiment exhibits no relation to returns on the long legs of the strategies.

Original language	English (US)
Pages (from-to)	288-302
Number of pages	15
Journal	Journal of Financial Economics
Volume	104
Issue number	2
DOIs	https://doi.org/10.1016/j.jfineco.2011.12.001
State	Published - May 2012
Externally published	Yes

Bibliographical note

Funding Information:
We are grateful for helpful comments from Scott Cederburg, Zhi Da, Kent Daniel, Wayne Ferson, Murray Frank, Byoung-Hyoun Hwang, Paul Irvine, Robert Novy-Marx, Stavros Panageas, Ľuboš Pástor, Bill Schwert, Jeff Wurgler, Jinghua Yan, seminar participants at Fudan University, Shanghai Advanced Institute of Finance (SAIF), the University of Arizona, the University of Minnesota, and the University of Pennsylvania, and participants at the 2010 Conference on Financial Economics and Accounting, the 2011 China International Conference in Finance, the 2011 Driehaus Behavioral Finance Symposium, the 2011 George Washington University—International Monetary Fund Conference on Behavioral Finance, and the 2011 National Bureau of Economic Research Behavioral Finance Meeting. We also thank Edmund Lee and Huijun Wang for excellent research assistance. Jianfeng Yu gratefully acknowledges financial support from the Dean's Small Research Grant from the Carlson School of Management at the University of Minnesota.

Keywords

Anomalies
G12
G14
Investor sentiment

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abstract = "This study explores the role of investor sentiment in a broad set of anomalies in cross-sectional stock returns. We consider a setting in which the presence of market-wide sentiment is combined with the argument that overpricing should be more prevalent than underpricing, due to short-sale impediments. Long-short strategies that exploit the anomalies exhibit profits consistent with this setting. First, each anomaly is stronger (its long-short strategy is more profitable) following high levels of sentiment. Second, the short leg of each strategy is more profitable following high sentiment. Finally, sentiment exhibits no relation to returns on the long legs of the strategies.",

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The short of it: Investor sentiment and anomalies

Abstract

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