Comparing sentiment and sentiment shock in stock returns
ISSN: 0307-4358
Article publication date: 15 January 2024
Issue publication date: 24 May 2024
Abstract
Purpose
The authors compare sentiment level with sentiment shock from different angles to determine which measure better captures the relationship between sentiment and stock returns.
Design/methodology/approach
This paper examines the relationship between investor sentiment and contemporaneous stock returns. It also proposes a model of systems science to explain the empirical findings.
Findings
The authors find that sentiment shock has a higher explanatory power on stock returns than sentiment itself, and sentiment shock beta exhibits a much higher statistical significance than sentiment beta. Compared with sentiment level, sentiment shock has a more robust linkage to the market factors and the sentiment shock is more responsive to stock returns.
Originality/value
This is the first study to compare sentiment level and sentiment shock. It concludes that sentiment shock is a better indicator of the relationship between investor sentiment and contemporary stock returns.
Keywords
Citation
Bu, Q. and Forrest, J. (2024), "Comparing sentiment and sentiment shock in stock returns", Managerial Finance, Vol. 50 No. 6, pp. 1174-1195. https://doi.org/10.1108/MF-04-2023-0226
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited