Excess stock return comovement and the role of investor sentiment

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This paper investigates whether investor sentiment can explain stock return comovements. Our findings demonstrate that since the 1960s, there has been a clear and rapid increase in correlations between international equity markets. Decomposing the equity returns into fundamental and non-fundamental components reveals that the increased correlation is driven by the non-fundamental part. We find that stock return comovements are mainly driven by investor sentiment, which explains the level, variance, and covariance of the non-fundamental component of returns.

Original languageEnglish
Pages (from-to)74-87
Number of pages14
JournalJournal of International Financial Markets, Institutions & Money
Issue numberJuly
Publication statusPublished - Jul 2017

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