Keywords

manager sentiment, textual tone, investor sentiment, asset pricing, return predictability

Abstract

This paper constructs a manager sentiment index based on the aggregated textual tone of corporate financial disclosures. We find that manager sentiment is a strong negative pre- dictor of future aggregate stock market returns, with monthly in-sample and out-of-sample R 2 s of 9.75% and 8.38%, respectively, which is far greater than the predictive power of other previously studied macroeconomic variables. Its predictive power is economically compa- rable and is informationally complementary to existing measures of investor sentiment. Higher manager sentiment precedes lower aggregate earnings surprises and greater aggre- gate investment growth. Moreover, manager sentiment negatively predicts cross-sectional stock returns, particularly for firms that are difficult to value and costly to arbitrage.

Original Publication Citation

Jiang, F., J. Lee, X. Martin, and G. Zhou. 2019. "Manager Sentiment and Stock Returns," Journal of Financial Economics, 132 ( !), 126-149.

Document Type

Peer-Reviewed Article

Publication Date

2018

Publisher

Journal of Financial Economics

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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Accounting Commons

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