This study examines the asset pricing role of ‘sentiment risk' in stock returns in the case of the UK stock market. We define sentiment risk as the sensitivity of stock returns to investor sentiment in financial markets. We incorporate a broad range of financial market variables in measuring...

We test whether firm idiosyncratic risk is priced in a large cross-section of U.K. stocks. A distinguishing feature of our paper is that our tests allow for a conditional relationship between systematic risk (beta) and returns in our tests, i.e., conditional on whether the excess market return...