The influence of investor sentiment on stock prices among industries in the US

Abstract

Research has shown that company-specific fundamental valuation factors impact stock prices, including diluted earnings (DEPS), book value (BV), and dividends (DIV) on a per-share basis. Free cash flow (FCF) has also been investigated, albeit not as extensively. Recently, investor sentiment, a behavioural factor, has been studied. Using the ordinary least square (OLS) method, this study explores the impact of company-specific fundamental valuation factors on stock prices of firms in significant industries in the US, for which investor sentiment is statistically significant. The results indicate that the industry variable is significant in the stock price. Further, investor sentiment, specifically whether it is optimistic or pessimistic, is significant in two industries, finance and manufacturing. Finally, the significance of the valuation factors differed based on investor optimism, for which all included variables are significant, and investor pessimism, for which only earnings-based factors are significant in the finance sector but not in manufacturing.