Quant Macro Investing

Risk Taking Disciplined

Investor Sentiment and Momentum

Investor Sentiment and Momentum

 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1479197

 


John A. Doukas
Old Dominion University – College of Business & Public Administration

Constantinos Antoniou
Durham Business School

Avanidhar Subrahmanyam
University of California, Los Angeles – Finance Area

September 13, 2009

Abstract:     
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. 

Keywords: behavioral finance, investor sentiment, momentum, market efficiency

October 10, 2009 - Posted by | Momentum Trading

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