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Journal of Finance Vol. 78 No. 4 2023

Retail Derivatives and Sentiment: A Sentiment Measure Constructed from Issuances of Retail Structured Equity Products

Brian J. Henderson; Neil D. Pearson1; Li Wang2,1,3,4,5,6,7,8

1 University of Illinois Urbana-Champaign · 2 Pearson (United States) · 3 Urban Institute · 4 George Washington University · 5 Human Factors (Norway) · 6 Marymount University · 7 Case Western Reserve University · 8 University of Hong Kong

Abstract

We use retail structured equity product (SEP) issuances to construct a new sentiment measure for large capitalization stocks. The SEP sentiment measure predicts negative abnormal returns on the SEP reference stocks based on a variety of factor models, and also predicts returns in Fama‐MacBeth regressions that include a wide range of covariates. Consistent with our interpretation that SEP issuances reflect investor sentiment, aggregate SEP issuances are highly correlated with the Baker‐Wurgler sentiment index. Tobit regressions reveal that proxies for attention and sentiment predict SEP issuance volumes, providing additional evidence consistent with the hypothesis that SEP issuances reflect sentiment.

DOI
10.1111/jofi.13253
Volume
78
Issue
4
Pages
2365-2407
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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