Sentiment and blue-chip returns. Firm level evidence from a dynamic threshold model

The higher impact of sentiment on small and young companies due to higher transaction and information costs is a generally agreed notion. In contrast, the paper is focused on the relationship between sentiment and blue-chip stocks. The author contributes with the proposal of theoretical background that blue-chip stocks can reflect sentiment in periods of occasional excessive social activity despite the existence of smart-money investors. The author employs the appropriate empirical methods, specifically dynamic threshold model, to analyze such a relationship because standard regression is not appropriate. In addition, the paper contribution is the employment of unique data of Facebook activity as a sentiment gauge. Overall, the author finds the high level of social activity connected with negative sentiment with inverse but occasional influence at stock price returns.