Institutional investor sentiment and aggregate stock returns

Xiang Gao, Chen Gu*, Kees Koedijk

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

1080 Downloads (Pure)

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
Pages (from-to)899-924
Number of pages26
JournalEuropean Financial Management
Volume27
Issue number5
Early online date20 Oct 2020
DOIs
Publication statusPublished - 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

Cite this