Abstract
<p class="MsoNormal" style="text-align: justify; line-height: normal; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; font-size: 10pt;">Recent literature in behavioral finance has contradicted the notion of efficiency of markets.<span style="mso-spacerun: yes;">&nbsp; </span>Greater emphasis on how psychological biases influence both the behavior of investors and asset prices has led to a strong debate among proponents of behavioral finance and neoclassical finance.<span style="mso-spacerun: yes;">&nbsp; </span>This has created the need to study how psychology affects financial decisions in households, markets and organizations.<span style="mso-spacerun: yes;">&nbsp; </span>This study conducts a pooled ordinary least squares (OLS) model using the fixed effects estimator to investigate the linkage between investor sentiment and stock prices for 35 firms belonging to three different industries over a time period of 56 years, from 1950 to 2005.<span style="mso-spacerun: yes;">&nbsp; </span>The findings suggest that investor sentiment does not significantly affect the stock prices in this sample.</span></p>
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