The information environment and sentiment effects on stock returns: an international study

Abstract

This study investigates sentiment effects on stock returns and the role of information environments in 23 financial markets around the world. Consistent with prior studies, I find that investor sentiment negatively affects subsequent stock returns in global markets. Moreover, sentiment effects on market returns are much weaker in countries with higher information disclosures and better auditing standards, due to higher reliability and transparency of information thus less subjectivity of valuations in these countries. In addition, both the global and local component of investor sentiment has a negative and significant impact on future stock returns. There is also evidence that better information environments reduce the effects of local component of sentiment rather than the global component of investor sentiment.