Business sentiment and the cross-section of global equity returns

Adam Zaremba , Adam Szyszka , Huaigang Long , Dariusz Zawadka


This 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.
Author Adam Zaremba (WZ / KIiRK)
Adam Zaremba,,
- Department of Investment and Capital Markets
, Adam Szyszka
Adam Szyszka,,
, Huaigang Long - Zhejiang University, China
Huaigang Long,,
, Dariusz Zawadka (WZ / KIiRK)
Dariusz Zawadka,,
- Department of Investment and Capital Markets
Journal seriesPacific-Basin Finance Journal, [Pacific Basin Finance Journal], ISSN 0927-538X, e-ISSN 1879-0585, (N/A 100 pkt)
Issue year2020
Publication size in sheets0.7
Article number101329
Keywords in PolishNastroje w przedsiębiorstwa, Nastroje menedżerów, Przekrój stóp zwrotu z akcji, Międzynarodowa wycena aktywów, Przewidywalność zwrotu, Pewność biznesu
Keywords in EnglishBusiness sentiment, Managerial sentiment, The cross-section of stock returns, International asset pricing, Return predictability, Business confidence
ASJC Classification2002 Economics and Econometrics; 2003 Finance
Languageen angielski
Score (nominal)100
Score sourcejournalList
ScoreMinisterial score = 100.0, 03-07-2020, ArticleFromJournal
Publication indicators WoS Citations = 0; Scopus SNIP (Source Normalised Impact per Paper): 2018 = 1.279; WoS Impact Factor: 2017 = 1.603 (2) - 2017=2.015 (5)
Citation count*1 (2020-09-10)
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* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.
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