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© 2019 Elsevier B.V. Conventional wisdom suggests that the uncertainty of uninformed noise-traders’ sentiment deters rational traders’ arbitrage activities. However, nowadays, social media have made the public sentiment highly predictable, whereas the CAPM-motivated beta-return relation still does not hold in practice. This study advances an argument that the sentiment can also be brought about by rational, sophisticated investors’ use of psychological insight; resultantly, the arbitrage activities are demotivated by their own sentiment, rather than deterred by noise-traders’ sentiment risk. The proposed expectile CAPM provides a parsimonious way to account for this claim, and leads to a sentiment-based functional form of pricing kernel.
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Nguyen, Thin K. (2012)Social media allows people to participate, express opinions, mediate their own content and interact with other users. As such, sentiment information has become an integral part of social media. This thesis presents a ...
Smales, Lee (2017)The presence of investor sentiment pushes asset prices away from the equilibrium level justified by underlying fundamentals. While sentiment is not directly observable, identifying appropriate proxies and, quantifying the ...
Cheema, M.; Man, Y.; Szulczyk, Kenneth (2018)© 2018 International Review of Finance Ltd. Recent evidence on the relationship between investor sentiment and subsequent monthly market returns in China shows that investor sentiment is a reliable momentum predictor since ...