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Investor sentiment and futures market mispricing

Author

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  • Ryu, Doojin
  • Ryu, Doowon
  • Yang, Heejin

Abstract

We examine the effects of sentiment on mispricing in a highly liquid index futures market. Investor sentiment significantly affects futures mispricing, supporting its role in explaining price dynamics. Overly optimistic sentiment induces futures market overvaluation whereas pessimistic sentiment loses its explanatory power in undervaluation after controlling for trading activities and macroeconomic factors. The sentiment effect is more pronounced when noisy individual trading prevails.

Suggested Citation

  • Ryu, Doojin & Ryu, Doowon & Yang, Heejin, 2023. "Investor sentiment and futures market mispricing," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323009315
    DOI: 10.1016/j.frl.2023.104559
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    References listed on IDEAS

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    More about this item

    Keywords

    Arbitrage; Index futures; Investor sentiment; Mispricing;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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