El Departamento de Administración de la Facultad de Economía y Negocios de la Universidad de Chile, tienen el agrado de invitarle al Seminario Académico: Sentiment, Mispricing and Excess Volatility in Presence of Institutional Investors.
Autores: Juan Martin Sotes, Universidad de los Andes (presentador); Herve Roche, Universidad Adolfo Ibáñez.
Abstract:
We study the equilibrium implications on asset prices of sentiment-driven investors’ trading with benchmark-concerned institutions. In the model, both the (irrational) optimism of retail investors and the benchmarking concerns of institutions boost the aggregate demand for a stock. We show that the ensuing demand pressure has a depressing effect on the stock market price of risk but an ambiguous effect on volatility. The latter results from the combined effect of a benchmarking and a relative-wealth channels on the transmission of fundamental news to prices. In stark contrast with a well-known prediction of models with no institutions, the relative-wealth channel can induce a negative and asymmetric relation between investor sentiment and the stock return’s excess volatility. It further creates novel countercyclical patterns in stock volatility that cannot be explained in the absence of investor sentiment. Our results have a number of implications for the interpretation of the empirically documented dynamics of mispricing and excess volatility of financial assets.
