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The long of it: Odds that investor sentiment spuriously predicts anomaly returns

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  • Stambaugh, Robert F.
  • Yu, Jianfeng
  • Yuan, Yu
Abstract
Extremely long odds accompany the chance that spurious-regression bias accounts for investor sentiment׳s observed role in stock-return anomalies. We replace investor sentiment with a simulated persistent series in regressions reported by Stambaugh, Yu, and Yuan (2012), who find higher long-short anomaly profits following high sentiment, due entirely to the short leg. Among 200 million simulated regressors, we find none that support those conclusions as strongly as investor sentiment. The key is consistency across anomalies. Obtaining just the predicted signs for the regression coefficients across the 11 anomalies examined in the above study occurs only once for every 43 simulated regressors.

Suggested Citation

  • Stambaugh, Robert F. & Yu, Jianfeng & Yuan, Yu, 2014. "The long of it: Odds that investor sentiment spuriously predicts anomaly returns," Journal of Financial Economics, Elsevier, vol. 114(3), pages 613-619.
    • Handle: RePEc:eee:jfinec:v:114:y:2014:i:3:p:613-619
    DOI: 10.1016/j.jfineco.2014.07.008
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    More about this item

    Keywords

    Investor sentiment; Anomalies; Spurious regressors;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General

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