Portal de Periódicos da CAPES

Investor Sentiment and the Cross‐Section of Stock Returns

2006; Wiley; Volume: 61; Issue: 4 Linguagem: Inglês

10.1111/j.1540-6261.2006.00885.x

1540-6261

Malcolm Baker, Jeffrey Wurgler,

Auditing, Earnings Management, Governance

ABSTRACT We study how investor sentiment affects the cross-section of stock returns. We predict that a wave of investor sentiment has larger effects on securities whose valuations are highly subjective and difficult to arbitrage. Consistent with this prediction, we find that when beginning-of-period proxies for sentiment are low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, on the other hand, these categories of stock earn relatively low subsequent returns.