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 language | English |
|---|---|
| Pages (from-to) | 899-924 |
| Number of pages | 26 |
| Journal | European Financial Management |
| Volume | 27 |
| Issue number | 5 |
| Early online date | 20 Oct 2020 |
| DOIs | |
| Publication status | Published - Nov 2021 |
Funding
The authors thank John Doukas (the Editor), an anonymous referee, Sugato Chakravarty, Diego Garica, and Alexander Kurov for helpful comments. Chen Gu acknowledges the financial support from the Shanghai Pujiang Program (19PJC077). All errors or omissions are our responsibility.
Keywords
- cash flows
- institutional investors
- retail traders
- return predictability
- sentiment