We survey the literature on stock return forecasting, highlighting the challenges faced by forecasters as well as strategies for improving return forecasts. We focus on U.S. equity premium forecastability and illustrate key issues via an empirical application based on updated data. Some studies...

The recent asset pricing evidence on the return-liquidity risk relationship is mixed and somewhat ambiguous. We re-evaluate the importance of market-wide liquidity and liquidity risk for equity pricing by taking the role of investor sentiment into account. Regarding the market-wide liquidity...

We provide new evidence on investor disagreement based on a model where investors observe public information but agree to disagree on its interpretation. Specifically, we measure firm-level investor disagreement by the intraday volume-volatility elasticity around corporate news announcement. A...

We extend the noise trader risk model of Delong et al. (J Polit Econ 98:703–738, 1990) to a model with multiple risky assets to demonstrate the effect of investor sentiment on the cross-section of stock returns. Our model formally demonstrates that market-wide sentiment leads to relatively...

Stock return predictability by investor sentiment has been subject to constant updating, but reaching a decisive conclusion seems rather challenging as academic research relies heavily on US data. We provide fresh evidence on stock return predictability in an international setting and show that...

The research literature shows that investor sentiment is a contrarian predictor of aggregate stock market returns. However, we contend that investor sentiment only predicts aggregate stock market returns during high-sentiment states where overpricing is more prevalent than underpricing. Using a...

Recent evidence on the relationship between investor sentiment and subsequent monthly market returns in China shows that investor sentiment is a reliable momentum predictor since an increase (decrease) in investor sentiment leads to higher (lower) future returns. However, we suggest that...

We compare several representative sophisticated model averaging and variable selection techniques of forecasting stock returns. When estimated traditionally, our results confirm that the simple combination of individual predictors is superior. However, sophisticated models improve dramatically...

We use novel data on individual activity in a sports betting market to study the effect of past performance sequences on individual behavior in a real market. The revelation of fundamental values in this market enables us to disentangle whether behavior is caused by sentiment or by superior...