Published online by Cambridge University Press: 11 January 2019
We study how investor sentiment affects stock prices around the world. Relying on households’ Google search behavior, we construct a weekly measure of sentiment for 38 countries during 2004–2014. We validate the sentiment index in tests using sports outcomes and show that the sentiment measure is a contrarian predictor of country-level market returns. Furthermore, we document an important role of global sentiment in stock markets.
We thank Jennifer Conrad (the editor) and Byoung-Hyoun Hwang (the referee) for their insightful suggestions. We are grateful for valuable comments from Hendrik Bessembinder, Jie Cao, Zhanhui Chen, Zhiyao Chen, Joseph Cheng, Darwin Choi, Tarun Chordia, Oleg Chuprinin, Lili Dai, Stephen Geoffrey Dimmock, David Feldman, Huasheng Gao, Allaudeen Hameed, Chuan-Yang Hwang, Hyun Joong Im, Wenxi Jiang, Jun-Koo Kang, Paul Karehnke, Andrew Karolyi, Tiecheng Leng, Donghui Li, Weikai Li, Zhangxin Frank Liu, Jiang Luo, Chenghu Ma, Phong Ngo, David Ong, Heungju Park, Jerry T. Parwada, Peter Pham, Yaxuan Qi, Hong Ru, KonarkSaxena, Jianfeng Shen, Qian Sun, Cameron Truong, Baolian Wang, Chunyang Wang, Cong Wang, Shaun Shuxun Wang, Chishen Wei, Takeshi Yamada, Hua Zhang, Jason Zein, Xianming Zhou, Qi Zhu, Xiaoneng Zhu, and the conference and seminar participants at the 2016 Symposium on Emerging Financial Markets: China and Beyond, the 2016 Financial Management Association Asia/Pacific Conference, the 2016 Financial Management Association Annual Meeting, the International Finance and Banking Society 2016 Conference, the 2016 Asian Financial Association annual meeting, the 2016 Vietnam International Conference in Finance, Australian National University, Fudan University, Jinan University, Macquarie University, Nanyang Technological University, Norwegian School of Economics, Peking University, the Royal Melbourne Institute of Technology, Sungkyunkwan University, Shanghai University of Finance and Economics, the Chinese University of Hong Kong, and University of New South Wales, Australia. We thank Simon Huang and Yun Xue for their excellent research assistance. Gao acknowledges research support from the Early Career Scheme (ECS) (24503515).
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