2018/03/07 by Yong Jiang, Jiang, Yong, Zhongbao Zhou +1
Decision Sciences · Economics, Econometrics and Finance · #Econometrics (econ.EM) #FOS: Economics and business #Financial Markets and Investment Strategies #Market Dynamics and Volatility #Statistical Finance (q-fin.ST) #Stock Market Forecasting Methods
paper · pdf · doi:10.48550/arxiv.1803.02962
openalex publication_date 2018/03/07 · openalex created_date 2021/02/01 · openalex updated_date 2026/07/28
Behavioral theories posit that investor sentiment exhibits predictive power\nfor stock returns, whereas there is little study have investigated the\nrelationship between the time horizon of the predictive effect of investor\nsentiment and the firm characteristics. To this end, by using a Granger\ncausality analysis in the frequency domain proposed by Lemmens et al. (2008),\nthis paper examine whether the time horizon of the predictive effect of\ninvestor sentiment on the U.S. returns of stocks vary with different firm\ncharacteristics (e.g., firm size (Size), book-to-market equity (B/M) rate,\noperating profitability (OP) and investment (Inv)). The empirical results\nindicate that investor sentiment has a long-term (more than 12 months) or\nshort-term (less than 12 months) predictive effect on stock returns with\ndifferent firm characteristics. Specifically, the investor sentiment has strong\npredictability in the stock returns for smaller Size stocks, lower B/M stocks\nand lower OP stocks, both in the short term and long term, but only has a\nshort-term predictability for higher quantile ones. The investor sentiment\nmerely has predictability for the returns of smaller Inv stocks in the short\nterm, but has a strong short-term and long-term predictability for larger Inv\nstocks. These results have important implications for the investors for the\nplanning of the short and the long run stock investment strategy.\n