Research on the Investor Sentiment Moderating Effect of the Impact of Investor Attention on Stock Returns

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Abstract

The purpose of this paper is to discuss the impact of investor attention on stock returns, and to further explore the moderating effect of investor sentiment. We choose the weekly data of 463 US-listed firms that are part of the S&P 500 from January 4, 2021, to May 2, 2022, as a sample. This study runs fixed effect regression using the Google Search Index (GSVI) and the Popularity Index (AR) as proxies for investor attention and investor sentiment respectively. According to the regression results, investor attention has a positive impact on stock returns in general, indirectly proving that the positive impact of the "attention-driven trade hypothesis" is stronger than the negative one of the "risk compensation hypothesis". We build interaction terms to further investigate the moderating impact of investor sentiment, we build interaction terms. The results of the regression demonstrate that investor sentiment has a positive moderating effect, i.e., an improvement in investor sentiment will increase the positive effect of investor attention on stock returns.
Original languageEnglish
Pages (from-to)109-122
Number of pages14
JournalFrontiers in Economics and Management
Volume3
Issue number11
DOIs
Publication statusPublished - 19 Nov 2022

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