Sentiment-scaled CAPM and market mispricing

摘要

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 (beta) and the market risk premium to vary over time across different sentiment indices and portfolios. More importantly, the state beta 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 beta-return relation that gives a flat security market line, we document upward security market lines when plotting portfolio returns against their state beta s and portfolios with higher state beta s earn higher returns.