NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Investor Sentiment and the Cross-Section of Stock Returns

Malcolm Baker, Jeffrey Wurgler

NBER Working Paper No. 10449
Issued in April 2004
NBER Program(s):   CF   AP

We examine how investor sentiment affects the cross-section of stock returns. Theory predicts that a broad wave of sentiment will disproportionately affect stocks whose valuations are highly subjective and are difficult to arbitrage. We test this prediction by studying how the cross-section of subsequent stock returns varies with proxies for beginning-of-period investor sentiment. When sentiment is low, subsequent returns are relatively high on smaller stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme-growth stocks, and distressed stocks, consistent with an initial underpricing of these stocks. When sentiment is high, on the other hand, these patterns attenuate or fully reverse. The results are consistent with predictions and appear unlikely to reflect an alternative explanation based on compensation for systematic risk.

download in pdf format
   (440 K)

email paper

This paper is available as PDF (440 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10449

Published: Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, 08. citation courtesy of

Users who downloaded this paper also downloaded these:
Baker and Wurgler w13189 Investor Sentiment in the Stock Market
Qiu and Welch w10794 Investor Sentiment Measures
Barberis, Shleifer, and Vishny w5926 A Model of Investor Sentiment
Lee, Shleifer, and Thaler w3465 Investor Sentiment and the Closed-End Fund Puzzle
Baker and Stein w8816 Market Liquidity as a Sentiment Indicator
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us