Investor Sentiment and Paradigm Shifts in Equity Return Forecasting

• 成果类型: Article
• 署名作者: Chu, Liya; He, Xue-Zhong; Li, Kai; Tu, Jun
• 署名单位: East China University of Science & Technology; Xi'an Jiaotong-Liverpool University; Southwestern University of Finance & Economics - China; Macquarie University; Singapore Management University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3834
• 发表日期: 2022
• 页码: 4301-4325
• 关键词: Return predictability; economic predictors; non-fundamental predictors; regime-switching; Behavioral biases

摘要

This study investigates the impact of investor sentiment on excess equity return forecasting. A high (low) investor sentiment may weaken the connection between fundamental economic (behavioral-based nonfundamental) predictors and market returns. We find that although fundamental variables can be strong predictors when sentiment is low, they tend to lose their predictive power when investor sentiment is high. Nonfundamental predictors perform well during high-sentiment periods while their predictive ability deteriorates when investor sentiment is low. These paradigm shifts in equity return forecasting provide a key to understanding and resolving the lack of predictive power for both fundamental and nonfundamental variables debated in recent studies.