Document Type

Article

Publication Date

2021

DOI

10.1111/eufm.12306

Publication Title

European Financial Management

Volume

27

Issue

2

Pages

208-243

Abstract

This study explores the conditional version of the capital asset pricing model on sentiment to provide a behavioural intuition behind the value premium and market mispricing. We find betas (β) and the market risk premium to vary over time across different sentiment indices and portfolios. More importantly, the state β derived from this sentiment-scaled model provides a behavioural explanation of the value premium and a set of anomalies driven by mispricing. Different from the static β-return relation that gives a flat security market line, we document upward security market lines when plotting portfolio returns against their state βs and portfolios with higher state βs earn higher returns.

Comments

© 2021 The Authors

This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial‐NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non‐commercial and no modifications or adaptations are made.

Original Publication Citation

Doukas, J. A., & Han, X. (2021). Sentiment-scaled CAPM and market mispricing. European Financial Management, 27(2), 208-243. https://doi.org/10.1111/eufm.12306

Download

Share

COinS