This paper proposes a new metric to gauge investor sentiment using a relative valuation method. We combine investor behavioral finance traits and option-implied standard deviations under both the real-world probability (P) valued most in the view of uninformed investors and the risk-neutral...

This paper examines the equity market return predictability of institutional investor sentiment, in comparison to individual investor sentiment. Our findings suggest that institutional traders are informed, and that their sentiment helps tilting stock prices towards the intrinsic value. This is...

We find that investor sentiment should affect a firm's employment policy in a world with moral hazard and noise traders. Consistent with the model's predictions, we show that higher sentiment among US investors leads to: (1) higher employment growth worldwide; (2) lower labor productivity, as the...

We develop a multi-country model with moral hazard and noise traders, and show that investor sentiment should affect employment growth both domestically and abroad. Using a large sample of international industry-level data, we find strong support for the model's predictions. We show that US...

Recent research shows that a high wage gap between managers and workers identifies better-performing firms, but the stock market does not seem to price this information. In this paper, we show that not all investors neglect pay inequality. Using a unique data set on German firms' employee...

Previous research shows that high sentiment among U.S. investors increases real investment both domestically and abroad. In this paper, we show that high sentiment among U.S. investors also prompts financially developed countries to invest more in the United States, especially if they exhibit a...