Firm-specific investor sentiment and daily stock returns

摘要

This study examines the relation between investor sentiment and asset returns in the Korean stock market, which is characterized by significant information asymmetry and a high degree of market sentiment. We also analyze the role of firm characteristics in the significance of the effect of sentiment on individual stock returns by conducting a sorted comparison, regression for portfolios constructed based on firm characteristics, and regression for long-short portfolios. Our empirical results indicate that sentiment is positively related to realized stock returns in the short term. This result contrasts with findings of a longer-term relation in developed markets. Furthermore, the positive relation between sentiment and realized returns is more prominent for firms that are harder to value (e.g., smaller firms, more volatile firms, firms with higher book-tomarket ratios, unprofitable firms, more distressed firms, and firms with fewer trades by arbitrageurs).