The impact of investor sentiment for the U.S. stock market based on Fama-French 3-factor model
Sifan Yu
- Vol. 275, pp 01055
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TLDR
In this paper, the impact of investor sentiment on the U.S. stock market was investigated using Fama-French risk factors in a new multiple factor asset pricing model, and the investor sentiment is measured by six-variable composite index.Abstract:
Particularly, it is difficult to accurately measure investor sentiment due to the inherent complexity and dynamic change. This paper tests the impact of investors’ behavior in the U.S. equity market. By using monthly data from February 2014 to December 2018, the impacts of investor sentiment are examined. Besides, Fama-French risk factors are investigated in a new multiple factor asset pricing model. Specifically, the investor sentiment is measured by six-variable composite index. Empirical results indicate that the investor sentiment is a composition of systemic risk. In this case, the Fama-French three factor model with investor sentiment factor can fully explains the return of stocks in the USA stock market. By comparing the trend of investor sentiment and market index, investor sentiment will affect asset pricing and market volatility, i.e., verifies the effectiveness of investor sentiment index in the U.S, stock market.read more
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