Institutional investor sentiment and aggregate stock returns

Xiang Gao, Chen Gu*, Kees Koedijk

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper examines the equity market return predictability of institutional investor sentiment, in comparison to individual investor sentiment. Our findings suggest that institutional traders are informed and that their sentiment helps to tilt stock prices towards the intrinsic value. This is because the sentiment of institutions encompasses news regarding expectations on future cash flows of underlying firms that impounds itself into future price expectations. In this study, we add to the large number of studies that investigate the role and implications of investor sentiment, which has long been viewed as a pure behavioural phenomenon, on market efficiency and price discovery.

Original languageEnglish
JournalEuropean Financial Management
DOIs
Publication statusAccepted/In press - 2020

Keywords

  • cash flows
  • institutional investors
  • retail traders
  • return predictability
  • sentiment

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