Investor sentiment, stock mispricing, and long-term growth expectations

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

I analyze whether or not market-wide investor sentiment induces stock mispricing, by affecting the boldness of predictions of firms' long-term earnings growth. I predict that bullish market-wide sentiment induces investors to aggressively separate firms with high growth futures from others, and that this excessive boldness results in a high level of mispricing. Consistent with my prediction, I observe an excessively large dispersion in consensus growth forecasts when proxies for investor sentiment are high at the beginning of the period. Furthermore, stocks with higher-predicted growth experience more negative forecast revisions and lower subsequent stock returns, especially following periods of high investor sentiment.

Original languageEnglish
Pages (from-to)414-423
Number of pages10
JournalResearch in International Business and Finance
Volume36
DOIs
Publication statusPublished - Jan 1 2016
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting (miscellaneous)
  • Finance

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