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Individual mean-variance relation and stock-level investor sentiment

    Jun Sik Kim Affiliation
    ; Da-Hea Kim Affiliation
    ; Sung Won Seo Affiliation

Abstract

This research studies the effect of stock-level investor sentiment on individual stock returns’ mean-variance relation. Using unique buy and sell volume data of retail investors in Korean stock market, we find that a positive mean-variance relation is undermined among high-sentiment stocks, but holds among low-sentiment stocks. We adopt buy-sell imbalances of retail investors for individual stocks as a measure of stock-level investor sentiment. Further, our findings provide empirical evidence of a strong riskreturn trade-off among stocks with low retail concentration (e.g., large capitalization, high-priced, and growth stocks). Existing research only analyzes market-wide investor sentiment. However, we study the effect of stock-level investor sentiment on individual stock returns. Therefore, our findings suggest novel implications about the investment strategy that the stock-level investor sentiment is important when constructing portfolios based on variance.

Keyword : investor sentiment, mean-variance relation, risk-return trade-off, conditional variance, buy-sell imbalance, individual stock markets

How to Cite
Kim, J. S., Kim, D.-H., & Seo, S. W. (2017). Individual mean-variance relation and stock-level investor sentiment. Journal of Business Economics and Management, 18(1), 20-34. https://doi.org/10.3846/16111699.2016.1252794
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Feb 5, 2017
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This work is licensed under a Creative Commons Attribution 4.0 International License.