This paper investigates whether investor sentiment can explain stock return comovements. Our findings demonstrate that since the 1960s, there has been a clear and rapid increase in correlations between international equity markets. Decomposing the equity returns into fundamental and non-fundamental components reveals that the increased correlation is driven by the non-fundamental part. We find that stock return comovements are mainly driven by investor sentiment, which explains the level, variance, and covariance of the non-fundamental component of returns.
|Number of pages||14|
|Journal||Journal of International Financial Markets, Institutions & Money|
|Publication status||Published - Jul 2017|
- Excess comovement
- International equity markets
- Investor sentiment