Business sentiment and the cross-section of global equity returns
Adam Zaremba , Adam Szyszka , Huaigang Long , Dariusz Zawadka
AbstractThis study is the first to examine the relationship between business sentiment and future equity returns in the cross-section of countries. We demonstrate that high-sentiment markets outperform low-sentiment markets. A spread portfolio buying (selling) the quintile of countries with the highest (lowest) managerial sentiment yields a monthly return of 0.51% and is robust to many control variables. We link the observed phenomenon with the sentiment-chasing mechanism. In line with these behavioral roots, the effect is stronger in hard-to-value markets with elevated limits to arbitrage and in markets based in countries with collectivistic national cultures. Also, the overpricing is temporary: it is eventually reversed, erasing the initial profits. Finally, we demonstrate that practical implementation of the documented effect by international investors may be challenging.
|Journal series||Pacific-Basin Finance Journal, [Pacific Basin Finance Journal], ISSN 0927-538X, e-ISSN 1879-0585, (N/A 100 pkt)|
|Publication size in sheets||0.7|
|Keywords in Polish||Nastroje w przedsiębiorstwa, Nastroje menedżerów, Przekrój stóp zwrotu z akcji, Międzynarodowa wycena aktywów, Przewidywalność zwrotu, Pewność biznesu|
|Keywords in English||Business sentiment, Managerial sentiment, The cross-section of stock returns, International asset pricing, Return predictability, Business confidence|
|Score||= 100.0, 03-07-2020, ArticleFromJournal|
|Publication indicators||= 0; : 2018 = 1.279; : 2017 = 1.603 (2) - 2017=2.015 (5)|
|Citation count*||1 (2020-09-10)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.