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Cited by 6,049Financial Markets and Investment StrategiesFinancial Analysis and Corporate GovernanceFinancial Risk and Volatility Modeling

Investor Sentiment and the Cross‐Section of Stock Returns

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BAKER, MALCOLM, WURGLER, JEFFREY·2006·The Journal of Finance
DOI 10.1111/j.1540-6261.2006.00885.x
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Abstract

We study how investor sentiment affects the cross‐section of stock returns. We predict that a wave of investor sentiment has larger effects on securities whose valuations are highly subjective and difficult to arbitrage. Consistent with this prediction, we find that when beginning‐of‐period proxies for sentiment are low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non‐dividend‐paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, on the other hand, these categories of stock earn relatively low subsequent returns.

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  • DeepSeek news signals are highly correlated with the investor sentiment measure proposed by Baker and Wurgler (2006).

    “A detailed examination further indicates that these news signals are highly correlated with the investor sentiment measure proposed by Baker and Wurgler (2006), whereas sentiment metrics extracted via GPT do not display a statistically significant correlation with investor sentiment.”

    From ChatGPT and Deepseek: Can They Predict the Stock Market and Macroeconomy? (2025) · cites this paper as Baker and Wurgler (2006)

  • Sentiment metrics extracted via GPT do not display a statistically significant correlation with investor sentiment.

    “A detailed examination further indicates that these news signals are highly correlated with the investor sentiment measure proposed by Baker and Wurgler (2006), whereas sentiment metrics extracted via GPT do not display a statistically significant correlation with investor sentiment.”

    From ChatGPT and Deepseek: Can They Predict the Stock Market and Macroeconomy? (2025) · cites this paper as Baker and Wurgler (2006)

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Cited by

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Authors
BAKER, M., & WURGLER, J.
Affiliations
National Bureau of Economic Research (US)
ORCID
WURGLER, JEFFREY
Venue
The Journal of Finance
Publisher
Wiley
Published
2006-08
Volume
61
Issue
4
Pages
1645-1680
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/j.1540-6261.2006.00885.x
OpenAlex
W3121467893
Cited by
6,049
References
2
Citations by year
2026: 500 · 2025: 586 · 2024: 524 · 2023: 522 · 2022: 500 · 2021: 521 · 2020: 417 · 2019: 355 · 2018: 347 · 2017: 280 · 2016: 263 · 2015: 241 · 2014: 214 · 2013: 176 · 2012: 164
FWCI
99.81
Type
journal article
Language
en
Open access
Licence
onlinelibrary.wiley.com/termsAndConditions#vor (vor, 2 d)
Locations
The Journal of Finance (publishedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Risk and Volatility Modeling
Keywords
investor sentiment, cross-section of stock returns, subjective valuation, arbitrage, small stocks, young stock, growth stocks

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