Work

Relative investor sentiment

Year: 2025

Type: article

Abstract: We propose a new investor sentiment index by estimating the differences between moments from realized stock returns and option-implied moments. Validating the Relative Investor Sentiment index, we show that the index is correlated with other proxies, exhibits known patterns of stock market reactions to sentiment shocks, is stronger for hard-to-arbitrage assets, and is complementary to alternative sentiment measures on a monthly and daily horizon. Using our monthly index, we show that momentum strategies perform significantly better during high sentiment periods and even worse in low sentiment periods.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2025.104105

Authors: Xiang Gao, Kees Koedijk, Thomas Walther, Zhan Wang

Institutions: Shanghai Business School, Utrecht University, Centre for Economic Policy Research, Technische Universität Dresden

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $1,930

OpenAlex ID: W4409535110

FWCI: 1.869

Cites: 51

Cited by: 2

Related to: 10