Effects of Investor Sentiment on Excess Return in Fama-French Five-Factor Model

Abstract

Objective: This study examined the effects of investor sentiment index on excess return in the Fama-French five-factor model, in the companies listed in the Tehran Stock Exchange in the period 2009 to 2015. Methods: Data collection was based on document mining and referral to databases, and data analysis was performed using inference method and Stata and Eviews software. To test the research hypotheses a Panel data model was used. Results: The results showed that the investor sentiment index plays an important role in capital assets pricing, and supports this role of the index in creating excess return and price formation. Conclusion: Attention to the factors such as investor sentiment, besides the fundamental factors, can have significant effect on the decisions of investors and other users, regarding challenges of the efficient markets hypothesis.

Keywords

• fama and french five-factor model
• investor sentiment
• stock excess return
• behavioral finance