Mean-variance relation

: a sentimental affair

Abstract

This work documents the role investor sentiment plays on the market’s mean-variance tradeoff. We find that, during high-sentiment periods, investor sentiment undermines an otherwise positive mean-variance tradeoff. In low-sentiment periods, the common understanding holds that investors should obtain a compensation for bearing variance risk. These findings are robust to different stock return indices, variances estimates and sentiment measures. We also provide international evidence for five other countries and point out a possible leading role for U.S. sentiment.

Date of Award	4 Nov 2015
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Faias (Supervisor)