Investor Sentiment And Stock Market Anomalies

Based on the data from Shanghai and Shenzhen Stock Exchange Market, this study selects7anomalies reflecting mispricing of stock return, and investigates the effect of investor sentiment on mispricing of stocks. The two basic theoretical foundation is the presence of market-wide sentiment and the short-sale impediment, which exerts the phenomenon that overpricing is the more prevalent form of mispricing. In empirical analysis of long-short strategy profits, our result well support the three hypothesis extended from the two theories. First, the long-short strategy is more profitable following high levels of sentiment. Second, the short leg of each strategy is more profitable following high sentiment. Third, sentiment have no appreciable effect on the long-leg return.