Projects per year
Abstract
I study a Lucas exchange economy with many trees and a representative agent who forms extrapolative beliefs on market returns (market-wide sentiment). As a result of sentiment spillovers, the agent believes that there is momentum in the cross section of asset returns. However, from the point of view of an outside econometrician, the market price of risk relates negatively to sentiment. This, together with the subjective momentum, causes returns on momentum strategies to be a concave function of sentiment, leading to a downside risk of momentum. I find empirical evidence consistent with model predictions.
Original language | English |
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Article number | 104253 |
Pages (from-to) | 1-22 |
Number of pages | 22 |
Journal | Journal of Economic Dynamics and Control |
Volume | 133 |
DOIs | |
Publication status | Published - Dec 2021 |
Keywords
- Extrapolation
- Investor sentiment
- Spillovers
- Momentum
- Skewness
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Dive into the research topics of 'Nonlinear effect of sentiment on momentum'. Together they form a unique fingerprint.Projects
- 2 Finished
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Slow Diffusion of Information in Asset Pricing and Risk Management
1/01/18 → 31/12/20
Project: Research