What’s Trending? Stock-Level Investor Sentiment and Returns

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Analysis shows investor sentiment strongly influences returns for hard-to-value stocks, indicating market behavior patterns.

High investor sentiment correlates with increased stock returns and subsequent reversals within a year.
The study reveals that the non-fundamental component of sentiment drives return predictability and reversals.
Findings indicate sentiment’s effects are particularly pronounced in small and young firms with limits to arbitrage.
Investor sentiment is persistent and systematic in the short term, as derived from social media sources.

Krystyniak et al. (2025) studied this question.

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