Excess stock return comovements and the role of investor sentiment

Bart Frijns; W.F.C. Verschoor; R.C.J. Zwinkels

doi:10.1016/j.intfin.2017.02.005

Excess stock return comovements and the role of investor sentiment

Bart Frijns, W.F.C. Verschoor, R.C.J. Zwinkels

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Abstract

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 language	English
Pages (from-to)	74-87
Number of pages	14
Journal	Journal of International Financial Markets, Institutions & Money
Volume	49
Early online date	24 Feb 2017
DOIs	https://doi.org/10.1016/j.intfin.2017.02.005
Publication status	Published - Jul 2017

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Excess stock return comovements and the role of investor sentiment

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