Title: Synthesis of the effect of investor sentiment on stock returns: a systematic review

Authors: Ajit Yadav; Anindita Chakraborty

Addresses: Institute of Management Studies, Banaras Hindu University, Varanasi, Uttar Pradesh, India ' Institute of Management Studies, Banaras Hindu University, Varanasi, Uttar Pradesh, India

Abstract: The effect of investor sentiment on stock returns is a topic of long-standing interest amongst behavioural economists. This paper systematically reviews the literature on the effect of investor sentiment on stock returns. We have systematically reviewed 107 selected studies and analysed them based on the year, journal of publication, country of sample data, study type, techniques employed, and citations. The literature analysis reveals the dearth of literature on the sentiment-return relationship in developing economies. It also highlights that there exists no set consensus on the sentiment-return relationship along with a lack of clear-cut distinction between the effect of components (rational or irrational) of investor sentiment on the stock performance. It also questions whether the investors can hedge against future risk and whether distinct return patterns are based upon the lead-lag variation or is merely the effect of the optimistic exuberance of the investors.

Keywords: investor sentiment; stock returns; stock markets; mispricing; trading behaviour; asset pricing; measuring sentiment.

DOI: 10.1504/GBER.2023.131193

Global Business and Economics Review, 2023 Vol.28 No.4, pp.425 - 446

Received: 22 Sep 2021
Accepted: 27 Apr 2022
Published online: 01 Jun 2023 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article