Title: The relationship between investor sentiment and stock returns: the case of the S&P 500 companies

Authors: Rawya Ben Youssef; Fathi Jouini

Addresses: Institute of Higher Business Studies, University of Sousse, Sousse, 4054, Tunisia ' Laboratory of Research in Innovative Management, Risk, Accounting and Finance, Faculty of Economic and Management of Sousse, University of Sousse, Sousse, 4023, Tunisia

Abstract: This paper investigates the association between stock returns and firm-specific investor sentiment in US stock market, including 265 firms belonging to the S&P 500 Index on daily data from 2010 to 2018, by using five-factor model and four sentiment indicators. The study allows to analyst to predict stock price movements and to decide on the market position and to identify the behaviour and expectations of speculative traders and/or noisemakers who invest based on their own emotions and feelings. The composite sentiment index allows for a more in-depth and multiple approaches to determining investor sentiment than a single indicator. This research shows that the risk factor, and profitability factor played an important role in assessing expected stock returns. The empirical results suggest that there is a negative relationship between sentiment and stock market performance. However, we also find a positive association between sentiment and short-run stock returns.

Keywords: excess return; firm-specific investor sentiment; Fama and French five-factor model; principal component analysis.

DOI: 10.1504/IJMEF.2023.135666

International Journal of Monetary Economics and Finance, 2023 Vol.16 No.5, pp.309 - 333

Received: 11 Feb 2022
Accepted: 15 Jul 2022
Published online: 21 Dec 2023 *

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