Investor sentiment and the mean-variance relationship: European evidence

Wang, Wenzhao

Abstract

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.

Citation

Wang, W. (2018). Investor sentiment and the mean-variance relationship: European evidence. Research in International Business and Finance, 46, 227-239. https://doi.org/10.1016/j.ribaf.2018.02.006

• 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
• DOI: https://doi.org/10.1016/j.ribaf.2018.02.006
• Keywords: Investor sentiment, Mean-variance relationship, Risk-return tradeoff, Volatility
• Public URL: http://researchrepository.napier.ac.uk/Output/2851215