The Effect of Sentiment on Stock Returns
Baker and Wurgler published an article in the August 2006 Journal of Finance examining whether investor sentiment impacts subsequent stock returns. To gauge sentiment they measured and created a composite of six proxies: the closed-end fund discount; NYSE share turnover; the number of IPOs; first-day return on IPOs; equity share in new issues; and the dividend premium.
The authors find that when the sentiment composite level is below average, the subsequent returns are higher for newly listed stocks than for older stocks, for more volatile stocks than for less volatile stocks, for unprofitable than for profitable stocks, and for non-dividend payers than for dividend payers. The pattern reverses when sentiment is high.
For more information, see all articles on: Investing in Stocks, Investment Returns, Research, Security Selection See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
