Investor sentiment and stock returns
Author(s)
Brookins, Benjamin David Lee
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Alternative title
Sentiment shocks and stock returns
Other Contributors
Sloan School of Management.
Advisor
Adrien Verdelhan.
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Since Keynes coined the term animal spirits economists have been debating what the real impact human psychology is on economic variables. The major challenge in identifying these effects is the close ties between negative (positive) emotions and poor (good) future real outlook. I exploit a historical weighting anomaly in a widely cited US stock index to examine the impact of psychology on stock returns. I first argue this is a plausibly exogenous shock, and compare this measure to other measures found in the literature. I find that the measure doesn't seem to relate to previous proxies for investor sentiment, however, when I examine survey measures of interest rates and consumer confidence we find a relationship. I then examine how sentiment affects the cross section of stock returns, consistent with predictions I find that small stocks earn low subsequent returns when sentiment is low, and high returns when sentiment is high.
Description
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, 2014. Title as it appears in MIT degrees awarded booklet, February 2014: Sentiment shocks and stock returns. Cataloged from PDF version of thesis. Includes bibliographical references (page 45).
Date issued
2014Department
Sloan School of ManagementPublisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.