Sentiment and momentum
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Sentiment and momentum
Sentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum n whether sentiment affects the profitability of price momentum strategies. We hypothesize that news that contradicts investors* sentiment causes cognitive dissonance, which slows the diffusion of signals that oppose the direction of sentiment. Tliis phenomenon tends to cause underpricing of losers Sentiment and momentum under optimism and underpricing of winners under pessimism While the latter phenomenon can lie corrected by ai bill age buying, short-selling constraiSentiment and momentum
nts impede ai bitraging of losers under optimism, causing momentum to be stronger 111 optimistic periods. Our empirical analysis supports this argumenSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum a host of robustness checks including controls for market returns, firm size and analyst following .An analysis of net order flows from small and large trades indicates that small (but not large) investors are slow to sell losers druing optimistic periods. Momentum-based hedge portfolios formed duri Sentiment and momentum ng optimistic periods experience long-run reversals.Antoniou IS from XFI Centre for Finance and Investment. University of Exeter. Doukas IS from Old DSentiment and momentum
ominion University and Judge Business School. University of Cambridge. Subrahmanyan! is from the Anderson School. University of California. Los AngeleSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum ) 825-5355. We thank an anonymous referee. Hank Bessembinder (the editor). Sridhar Aicot. Weiner DeBondt. Andras Fulop. Stuart Gabriel. Soeren Hvidkjaer. Murali Jagannathan. Dennis Lasser. Ken Lehn. Laurence Lescourret. Haim Lexy. Yee Cheng Loon. Haiuio Lustig. Marios Panayides. Richard Roll. Kristi Sentiment and momentum an Rydqvist. Steve Salteno. Eduardo Schwartz. Carmen Stefanescu. Geoff Tate. Shawn Thomas. Premal Vora, Neng Wang, and seminar participants at ESSEC,Sentiment and momentum
University of Pittsburgh. UCLA. Indira Gandhi Institute of Development Research. Indian Institute of Management (Kolkata). SƯNY-Binghaniton. and the 2Sentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum versity, for valuable comments, and the Conference Board for kindly providing US with the sentiment data. We also are grateful to Jeffrey Wurgler and Malcolm Bakei for making their sentiment index publicly available.Electronic copy available at: krttpư/ssm com/abstT3ct: 14791S7Sentiment and Momentum Sentiment and momentum AbstractThis paper sheds empirical light oil whether sentiment affects the profitability of price momentum strategies. We hypothesize that news that cSentiment and momentum
ontradicts investors' sentiment causes cognitive dissonance, which slows the diffusion of signals that oppose the direction of sentiment. This phenomeSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum aibitrage buying, short-selling constraints impede aibitraging of losers under optimism, causing momentum to be stronger in optimistic periods. Our empirical analysis supports this argument by showing that momentum profits arise only under optimism, and aie driven principally by strong momentum in l Sentiment and momentum osing stocks. Ulis result survives a host of robustness checks including controls for market returns, film size and analyst following. An analysis ofSentiment and momentum
net order flows from small and large trades indicates that small (but not large) investors are slow to sell losers during optimistic periods. MomentumSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum 197IntroductionDoes sentiment affect financial asset prices? This issue is enduring and has taken on renewed significance in rhe context of dramatic rises and falls in the stock market during this decade. We address this question by examining whether variations in profitability from a key pattern in Sentiment and momentum stock prices, namely, stock price momentum, can be explained by variations in sentiment. Notably, our sculiuicut proxy is measured outside of the finSentiment and momentum
ancial markets, as we use tire Consumer Confidence Index® published by the Conference Board (CB) (orthogonalized with respect to a set macroeconomic vSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum onishok (1996)] and is well known to survive consideration of standard risk adjustments [Fama and French (1996)]. This return pattern is found to be robust across different markets [Rouwenhorst (1999); Doukas and McKliight (2002)] and different asset classes [Asness. Moskowitz, and Pedersen (2008)]. Sentiment and momentum The highly debated explanations for price momentum range from time-varying expected returns (eg.. Jolmson (2002)] to rationales based on market frictSentiment and momentum
ions and investor psychology [Hong and Stein (1999): Daniel. Hirshleifer. and Subrahmanyan] (1998)].1 * * 4 We shed light on the latter class of argumSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum tever extraneous reason, feels excessively optimistic or pessimistic about a situation. A large body of the psychology literature finds dial peoples’ current sentiment affects their judgment of future events, lor example. Johnson and 1 versky (1983) show (hat people that read sad newspaper articles Sentiment and momentum subsequently view various causes of death, such as disease etc., as more likely than people who read pleasant newspaper articles. Tn general, the evidSentiment and momentum
ence indicates that people with positive sentiment make optimistic judgments and choices, whereas people with negative1 Empứically. Ilona. Lun. and StSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum d by slow information difiitsion as suggestedby the model of Hong and Stein (1999). chordia and shivakutnar (2002) find that momentum profits are largely predictable from a set of macroeconomic variables, proposing a rational explanation for momentum. Cooper. Gutierrez, and Ilameed (2004) find that Sentiment and momentum momentum returns are entirely captured by lagged market returns, and suggest a behavioral explanation of momentum. For further discussions on the causSentiment and momentum
es of momentum, see Conrad and Kaul (1998), Moskowitz and Grinblatt (1999), Grundy and Martin (2001), and Gnnblatt and Han (2005).4https7/ssm.com/abstSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum Hong and Stein (1999) arguments to establish a link between sentiment and momentiun. Their framework indicates that news diffuses slowly through the actions of different sets of "newswatchers" that sequentially react to news, and this creates momentum. A class of ’’momentum traders” tiades reflexiv Sentiment and momentum ely in response to past price movements. Some momentum traders mistake pl ice movements due to previous momentum tiades as fundamental news movements.Sentiment and momentum
Their reactive trades set off an overreaction that eventually is corrected as momentum positions are reversed. We hypothesize that "newswatchers" wilSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum s that bad (good) news among loser (winner) stocks will diffuse slowly when sentiment is optimistic (pessimistic). In null, this will lead to momentum, albeit driven by the loser portfolio 111 optimistic sentiment periods and the wnuier portfolio in pessimistic sentiment periods. Although this argum Sentiment and momentum ent alone predicts symmetric momentum across sentiment periods, as a practical matter momentum may be more pronounced when sentiment is optimistic becSentiment and momentum
ause ai bill aging cognitive dissonance in these states requires the costly short selling of loser stocks.To ensure that our sentiment measure is freeSentiment and MomentumConstant inos AntoniouJohn A. DoukasAvanidliar SubralunanyamThis version May 20, 2011AbstractThis paper sheds empirical light on Sentiment and momentum on a set of macroeconomic variables. The variables include growth in industrial production, real growth 111 durable, non-durable. and senices consiunption. growth 111 employment and a National Bureau of Economic Research (NBER) recession indicator. Furthermore, in OIU robustness checks, we also con Sentiment and momentum sider the alternative index for investor sentiment constructed by Baker and Wurgler (2006. 2007).To summarize our results, we find that when sentimentSentiment and momentum
is optimistic the six-month momentum strategy yields significant profits, equal to an average monthly return of 2.00%. However, when investor sentimeGọi ngay
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