Investor Sentiment, Disagreement, and the Breadth�Return Relationship

• Autores: Cen Ling, Lu Hai, Yang Liyan
• Localización: Management science: journal of the Institute for operations research and the management sciences, ISSN 0025-1909, Vol. 59, Nº. 5, 2013, págs. 1076-1091
• Idioma: inglés
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• Resumen

  • We study the cross-sectional breadth�return relation by assuming that investors subject to market sentiment hold a biased belief in the aggregate. With a dynamic multiasset model, we predict that the breadth�return relationship can be either positive or negative depending on the relative strength of two offsetting forces�disagreement and sentiment. We find evidence consistent with our predictions. The breadth�return relationship is positive when the sentiment effect is small. However, the relationship becomes negative when (i) the time-series variation of market-wide sentiment is high and (ii) the cross-sectional dispersion of firm-specific exposure to market-wide sentiment variation is large. Our unified framework reconciles a few seemingly inconsistent empirical studies in this literature and explains puzzling cross-sectional return patterns observed during the Internet bubble and the subprime crisis periods.