Market sentiment and the Fama-French factor premia

•Examines dynamic interactions between market sentiment and the Fama-French factor premia.•Factor premia exert strong and long-lasting impacts on sentiments but the reverse effect is weak.•Sentiment transmits from more informed market participants to less informed ones.

We report new evidence that factor premia have strong dynamic effects on a range of sentiment measures, while the reverse effect is weak and only contemporaneous. Our analysis takes explicit account of endogeneity of sentiment measures to factor premia, and adopts statistical inference robust to non-normality and heteroscedasticity, which are largely neglected in the previous studies.