Relative investor sentiment

We propose a new investor sentiment index by estimating the differences between moments from realized stock returns and option-implied moments. Validating the Relative Investor Sentiment index, we show that the index is correlated with other proxies, exhibits known patterns of stock market reactions to sentiment shocks, is stronger for hard-to-arbitrage assets, and is complementary to alternative sentiment measures on a monthly and daily horizon. Using our monthly index, we show that momentum strategies perform significantly better during high sentiment periods and even worse in low sentiment periods.

Authors

Publication Details

Journal
International Review of Economics & Finance
Published
2025-04-17
DOI
https://doi.org/10.1016/j.iref.2025.104105
Citations
1
Primary Topic
Financial Markets and Investment Strategies
Type
article
Field-Weighted Citation Impact
2.21
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article

Relative investor sentiment

Xiang Gao, Thomas Walther, Zhan Wang, Kees C. G. Koedijk
1 citations
International Review of Economics & Finance
Financial Markets and Investment Strategies
2.21
article

Relative investor sentiment

Xiang Gao, Thomas Walther, Zhan Wang, Kees C. G. Koedijk
article en
1 citations

Abstract

We propose a new investor sentiment index by estimating the differences between moments from realized stock returns and option-implied moments. Validating the Relative Investor Sentiment index, we show that the index is correlated with other proxies, exhibits known patterns of stock market reactions to sentiment shocks, is stronger for hard-to-arbitrage assets, and is complementary to alternative sentiment measures on a monthly and daily horizon. Using our monthly index, we show that momentum strategies perform significantly better during high sentiment periods and even worse in low sentiment periods.

International Review of Economics & FinanceVol. 100
Openalex Percentile: Top 15%
Financial Markets and Investment Strategies
2.21
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