Sentiment, limited attention and mispricing
Publication Type
Working Paper
Version
publishedVersion
Publication Date
12-2020
Abstract
We examine whether various anomalies can be driven by two common behavioral forces, namely, ``subjective'' sentiment (representing investors' subjective biased beliefs) and ``objective'' limited attention (representing investors' objective cognitive constraints). While sentiment explains well many anomalies that are more speculative on the short-leg, it fails to explain anomalies that are equally speculative on the long and short-leg, including momentum and post-earnings announcement drift. Market-wide attention shifts, proxied by number of news averaged across stocks, significantly attenuates underreaction-driven anomalies, beyond the effect of sentiment. Our findings suggest that increase in market-wide attention can temporarily reduce the cost of attending to market and improve price efficiency.
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
50
Citation
DUAN, Xinrui; GUO, Li; LI, Frank Weikai; and Jun TU.
Sentiment, limited attention and mispricing. (2020). 1-50.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6799
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.