Investor sentiment and stock returns: Global evidence

Abstract

We assess the impact of investor sentiment on future stock returns in 50 global stock markets. Using the consumer confidence index (CCI) as the sentiment proxy, we document a negative relationship between investor sentiment and future stock returns at the global level. While the separation between developed and emerging markets does not disrupt the negative pattern, investor sentiment has a more instant impact in emerging markets, but a more enduring impact in developed markets. Individual stock markets reveal heterogeneity in the sentiment-return relationship. This heterogeneity can be explained by cross-market differences in culture and institutions, along with intelligence and education, to varying degrees influenced by the extent of individual investor market participation. • We assess the sentiment impact on future stock returns in 50 global stock markets. • A negative sentiment-return relationship is revealed at the global level. • Sentiment has a more instant (enduring) impact in emerging (developed) markets. • Individual stock markets show differences in the sentiment-return relationship. • Culture, institutions, intelligence/education and market participation play a role.