NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Investor Sentiment in the Stock Market

Malcolm Baker, Jeffrey Wurgler

NBER Working Paper No. 13189
Issued in June 2007
NBER Program(s):   AP   CF

Real investors and markets are too complicated to be neatly summarized by a few selected biases and trading frictions. The "top down" approach to behavioral finance focuses on the measurement of reduced form, aggregate sentiment and traces its effects to stock returns. It builds on the two broader and more irrefutable assumptions of behavioral finance -- sentiment and the limits to arbitrage -- to explain which stocks are likely to be most affected by sentiment. In particular, stocks of low capitalization, younger, unprofitable, high volatility, non-dividend paying, growth companies, or stocks of firms in financial distress, are likely to be disproportionately sensitive to broad waves of investor sentiment. We review the theoretical and empirical evidence for these predictions.

download in pdf format
   (160 K)

email paper

This paper is available as PDF (160 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13189

Published: Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.

Users who downloaded this paper also downloaded these:
Baker and Wurgler w17333 Behavioral Corporate Finance: An Updated Survey
Schwert w2798 Why Does Stock Market Volatility Change Over Time?
Eichengreen and Mody w6408 What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?
Bondt and Thaler w4777 Financial Decision-Making in Markets and Firms: A Behavioral Perspective
Baker, Ruback, and Wurgler w10863 Behavioral Corporate Finance: A Survey
 
Publications
Activities
Meetings
Data
People
About

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

Contact Us