Resource title

Institutional and Individual Sentiment: Smart Money and Noise Trader Risk

Resource image

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Resource description

Using a new data set on investor sentiment we show that institutional and individual sentiment proxy for smart money and noise trader risk, respectively. First, using bias-adjusted long-horizon regressions, we document that institutional sentiment forecasts stock market returns at intermediate horizons correctly, whereas individuals consistently get the direction wrong. Second, VEC models show that institutional sentiment forecasts mean-reversion whereas individuals forecast trend continuation. Finally, institutional investors take into account expected individual sentiment when forming their expectations in a way that higher (lower) expected sentiment of individuals lowers (increases) institutional return forecasts. Individuals neglect the information contained in institutional sentiment.

Resource author

Maik Schmeling

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22449

Resource license

Adapt according to the presented license agreement and reference the original author.