Does Investor Sentiment Really Matter for Equity Issuance Activity?

Abstract

We study the extent to which investor sentiment matters for aggregate equity issuance activity. We focus on firms that are extremely susceptible to investor sentiment but for which accurate measures of economic fundamentals are available. While sentiment on its own matters for equity issuance, it matters relatively little once we control for fundamentals. Together, all proxies for sentiment explain around 10 percentage points of equity issuance beyond the roughly 40 percent explained by fundamentals. Investor sentiment does not seem to matter very much for equity issuance activity.