We provide a theoretical framework to examine how investor sentiment impacts the mean-variance tradeoff. We derive a sentiment-adjusted Markowitz efficient frontier in which investor sentiment alters the first two moments of asset returns, the minimum-variance frontier as well as the Capital...

This study tests catering theory of dividend policies in twenty-one countries from 1991 to 2017. First, we show that there are important differences in corporate dividend policies across countries. Second, we find that the catering incentive is stronger when investor sentiment is low. Third,...

We propose idiosyncratic volatility based return spread as a new measure of the stock-level value of investor sophistication. We find that stocks with a high value of investor sophistication tend to have low average returns, and this effect is pronounced for highly short-sale constrained stocks....

Background: We investigate whether the success of contrarian investment strategies can be attributed to differences in the relative illiquidity of stocks categorized as value investments versus those categorized as glamour portfolios. Methods: Following Lakonishok et al. (J Financ...

We present evidence that market sentiment is positively priced in the cross-section of stock returns in low-sentiment periods. We estimate individual stock exposure to market sentiment and find that, in periods of low market sentiment, stocks in the highest sentiment beta quintile generate a...

This study examines the role of market disagreement in explaining the cross-section of hedge fund performance. In a market where disagreement fluctuates, skilled arbitrageurs may employ different trading strategies to exploit the mispricing caused by disagreement and short-sale constraints....