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Investor sentiment and the mean-variance relationship: European evidence

Wang, Wenzhao



This paper investigates the impact of investor sentiment on the mean-variance relationship in 14 European stock markets. Applying three approaches to define investors’ neutrality and determine high and low sentiment periods, we find that individual investors’ increased presence and trading over high-sentiment periods would undermine the risk-return tradeoff. More importantly, we report that investors’ optimism (pessimism) is more determined by their normal sentiment state, represented by the all-period average sentiment level, rather than the neutrality value set in sentiment surveys.

Journal Article Type Article
Acceptance Date Feb 27, 2018
Online Publication Date Mar 3, 2018
Publication Date 2018-12
Deposit Date Mar 9, 2022
Journal Research in International Business and Finance
Print ISSN 0275-5319
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 46
Pages 227-239
Keywords Investor sentiment, Mean-variance relationship, Risk-return tradeoff, Volatility
Public URL