Investor sentiment effect in stock markets: Stock characteristics or country-specific factors?

This paper analyzes the investor sentiment effect in four key European stock markets: France, Germany, Spain and the UK. The findings show that sentiment has a significant influence on returns, varying in intensity across markets. The variation appears to involve both stock characteristics and cross-country cultural or institutional differences. The results also show sensitivity to the choice of sentiment proxy, suggesting the need for further investigation.

► We study four key European stock markets with similar levels of financial development. ► We find that investor sentiment has a significant influence on stock returns. ► Stock characteristics are relevant in explaining the effect of investor sentiment. ► Stock characteristics are not the single key factor behind the sentiment effect. ► There is a specific role of country factors in the impact of investor sentiment.