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INVESTOR SENTIMENT AND PRICE MOMENTUM

10 October 2009 by Cullen Roche 1 Comment

Thanks to Abnormal Returns for steering us to this paper on psychology and price momentum.  Makes for excellent weekend reading:

This paper sheds empirical light on whether investor sentiment affects the profitability of price momentum strategies. We hypothesize that when investors are optimistic, their expectations will be more miscalibrated relative to those obtained from objective
probabilities, and arbitrage will be more difficult with short-selling constraints. Our results show that momentum rises only when investors are optimistic, and that optimistic momentum portfolios experience long-run reversals. These results provide support to the behavioral theories, suggesting that short-run momentum and long-run reversal commonly arise from investors’ behavioral biases.


SSRN-id1479197 –

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Comments
  • AWF

    Absolute POOP!

    Using Consumer Confidence (survey) data as a proxy for investor confidence is a faulty premise.

    Scrubbing the CB data with the data from the commerce department– ie– Industrial Production data may add auto corelation and is useless.

    The bottom line:

    If I have a job and I’m feeling good –

    I’m going to invest like Hell!–who’d thunk it

    Good research might have included something like this

    The number of Brokerage recommendation vs Investor sentiment.

    Or how about ” Crank it up” vs Up volume

    Is this someone’s master thesis???

    A– for effort
    D– for results

    10/10/2009 at 11:59 AM