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Investor sentiment, stock mispricing, and long-term growth expectations

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  • Miwa, Kotaro

Abstract

I analyze whether or not market-wide investor sentiment induces stock mispricing, by affecting the boldness of predictions of firms’ long-term earnings growth. I predict that bullish market-wide sentiment induces investors to aggressively separate firms with high growth futures from others, and that this excessive boldness results in a high level of mispricing. Consistent with my prediction, I observe an excessively large dispersion in consensus growth forecasts when proxies for investor sentiment are high at the beginning of the period. Furthermore, stocks with higher-predicted growth experience more negative forecast revisions and lower subsequent stock returns, especially following periods of high investor sentiment.

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  • Miwa, Kotaro, 2016. "Investor sentiment, stock mispricing, and long-term growth expectations," Research in International Business and Finance, Elsevier, vol. 36(C), pages 414-423.
    • Handle: RePEc:eee:riibaf:v:36:y:2016:i:c:p:414-423
    DOI: 10.1016/j.ribaf.2015.10.003
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