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Institutional Investor Sentiment and the Mean-Variance Relationship: Global Evidence
Wang, Wenzhao Duxbury, D.
Wang, Wenzhao
Duxbury, D.
Publication Date
2021-11
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© 2021 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license (https://creativecommons.org/licenses/by-nc-nd/4.0/)
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openAccess
Accepted for publication
22/08/2021
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Abstract
Although a cornerstone of traditional finance theory, empirical evidence in support of a
positive mean-variance relation is far from conclusive, with the behavior of retail investors
commonly thought to be one of the root causes of departures from this expected relationship.
The behavior of institutional investors, conventionally thought to be sophisticated and
rational, has recently come under closer scrutiny, including in relation to investor sentiment.
Drawing together these two strands of literature, this paper examines the impact of
institutional investor sentiment on the mean-variance relation in six regions, including Asia
(excl. Japan), Eastern Europe, Eurozone, Japan, Latin America, and the US, and across thirtyeight markets. Empirical evidence supports the differential impact of institutional investor
sentiment on the mean-variance relation (i.e., positive or negative), both across regions and
across markets. In particular, for markets with cultural proneness to overreaction and a low
level of market integrity institutional investor sentiment tends to distort the risk-return
tradeoff.
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Accepted manuscript
Citation
Wang W and Duxbury D (2021) Institutional Investor Sentiment and the Mean-Variance Relationship: Global Evidence. Journal of Economic Behavior and Organization. 191: 415-441.
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Article