IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v31y2025i1p76-98.html
   My bibliography  Save this article

Interaction between investor sentiment, limits to arbitrage and the returns of stock market anomalies: evidence from the UK stock market

Author

Listed:
  • Y. Alburaythin
  • S. G. M. Fifield
  • S. Paramati

Abstract

This study investigates the role of two prominent concepts in finance: limits to arbitrage and investor sentiment in stock prices. The study examines how changes in market-wide investor sentiment and limits to arbitrage can affect the performance of nine UK stock market anomalies. The extant literature relating to investor sentiment focuses mainly on the US stock market, whilst research on the UK market typically examines aggregated index-level data. In addition, previous studies have focused on examining investor sentiment and limits to arbitrage separately. Using data from UK-listed companies over the period January 1997 to December 2019, the study finds that five stock market anomalies were related to changes in UK investor sentiment and produced significantly higher returns following periods of high investor sentiment, while the effect of limits to arbitrage was mostly limited. However, the interaction analysis provided support to the limits to arbitrage theory and demonstrated that the effect of high investor sentiment on stock market anomalies was more pronounced when combined with high limits to arbitrage and had less effect during periods characterised by low limits to arbitrage.

Suggested Citation

  • Y. Alburaythin & S. G. M. Fifield & S. Paramati, 2025. "Interaction between investor sentiment, limits to arbitrage and the returns of stock market anomalies: evidence from the UK stock market," The European Journal of Finance, Taylor & Francis Journals, vol. 31(1), pages 76-98, January.
  • Handle: RePEc:taf:eurjfi:v:31:y:2025:i:1:p:76-98
    DOI: 10.1080/1351847X.2024.2377363
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2024.2377363
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/1351847X.2024.2377363?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:31:y:2025:i:1:p:76-98. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.