Date of Award

Winter 2007

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Program/Concentration

Business Administration-Finance

Committee Director

Mohammad Najand

Committee Member

John Griffith

Committee Member

Larry Filer

Abstract

Survey-based sentiment indexes from the American Association of Individual Investors, Investors' Intelligence, and the Yale University International Center for Finance show strong in-sample monthly return predictability and are strong factors in explaining the cross-sectional variation in monthly returns and in explaining the excess volatility in returns beyond that explained by cash flow fundamentals proxied by the payout yield and the issue yield from Boudoukh, et al. (2007). These finding are robust to the use of numerous methods of sentiment variable computation. Sentiment is a more significant factor during the period from January 1997 to December 2005 when U.S. stock valuations reached a peak and subsequently fell. There is no asymmetrical effect of positive and negative sentiment on monthly return volatility. There is a lagged return feedback to sentiment. There is a strong common component between sentiment and the issue yield during the "bubble" period. Overall there is strong support for a behavioral component to stock pricing. However, even with a strong in-sample performance, there is no improvement in return predictability for out-of-sample one month forecasts by the addition of sentiment measures to the payout yield and issue yield. These measures of market under or over-valuation don't improve the prediction of the timing or magnitude of future corrections in valuation.

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In Copyright. URI: http://rightsstatements.org/vocab/InC/1.0/ This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s).

DOI

10.25777/5ycz-sy96

ISBN

9780549308713

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