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Journal of Banking & Finance Vol. 139 2022

Investor sentiment and asset prices: Evidence from the ex-day

Shishir Paudel1,2; Sabatino Silveri3; Mark Wu4,5,6

1 University of Wisconsin–La Crosse · 2 State Street (United States) · 3 University of Memphis · 4 Qingdao Center of Resource Chemistry and New Materials · 5 Ocean University of China · 6 Roger Williams University

Abstract

We use the ex-dividend day setting to examine the association between investor sentiment and asset prices. While the dividend on the ex-day conveys no new information, we find that ex-day prices behave differently during high- versus low-sentiment periods. We show that high investor sentiment is associated with a reduction in the ex-day price-drop of about eight percent of the dividend amount. The magnitude of this association is comparable to those of traditional ex-day explanations. In addition, for stocks that are more sensitive to investor sentiment the effect is significantly larger than traditional ex-day explanations. Overall, our results contribute to the measurement of investor sentiment's relative importance to asset prices and narrow the gap between the theoretically predicted versus the empirically observed ex-day stock price.

DOI
10.1016/j.jbankfin.2022.106492
Volume
139
Pages
106492
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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