New Evidence on Psychology and Stock Returns
Document Type
Article
Publication Date
7-26-2017
Publication Title
Journal of Behavioral Finance
DOI
10.1080/15427560.2017.1344676
ISSN
1542-7579
Abstract
This article provides econometric evidence on the importance of psychological considerations for aggregate stock price fluctuations. To this end, a novel measure of stock market sentiment, dubbed the Net Psychology Index (NPI), based on information contained in Bloomberg News's end-of-the-day stock market reports, is confronted with a battery of multivariate empirical analyses. Results suggest that NPI is statistically different from popular sentiment proxies within the literature. NPI exhibits predictive power, increasing stock returns in the short run with this impact dissipating in the medium term. NPI does not exhibit asymmetric effects on returns for size- and momentum-related portfolios. A trading strategy based on NPI generates a statistically significant positive monthly return. Recursive out-of-sample fit analyses report a lower standard deviation of forecasting errors for NPI-based returns models versus competing accounts.
Recommended Citation
Mangee, Nicholas.
2017.
"New Evidence on Psychology and Stock Returns."
Journal of Behavioral Finance, 18 (4): 417-426: Taylor & Francis Online.
doi: 10.1080/15427560.2017.1344676 source: https://www.tandfonline.com/doi/full/10.1080/15427560.2017.1344676
https://digitalcommons.georgiasouthern.edu/finance-facpubs/6
