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Investor Sentiment and the Performance of Mutual Funds Pursuing Momentum and Contrarian Trading Strategies

Cullen, G., Gasbarro, D., Monroe, G.S. and Zumwalt, J.K. (2010) Investor Sentiment and the Performance of Mutual Funds Pursuing Momentum and Contrarian Trading Strategies. In: 23rd Australasian Finance and Banking Conference, 15 - 17 December, Sydney, NSW, Australia

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Abstract

The success of mutual funds engaging in momentum and contrarian trading strategies is predicated on the identification of mispriced stocks. Stock investor sentiment betas capture salient characteristics that predispose stocks to mispricing. Funds engage in momentum and contrarian trading in equal proportions, but differ in the sentiment betas of the stocks in their portfolios. Momentum funds hold stocks with higher sentiment betas, and with a wider spread of betas compared to contrarian funds. Fund excess returns are strongly related to Baker and Wurgler’s (2007) change in sentiment index, and the mean and spread of the sentiment betas of their stocks.

Publication Type: Conference Paper
Murdoch Affiliation: Murdoch Business School
School of Arts
School of Asian Studies
School of Biological Sciences and Biotechnology
School of Biological and Environmental Sciences
School of Business
School of Chemical and Mathematical Science
School of Chiropractic and Sports Science
School of Commerce
School of Education
URI: http://researchrepository.murdoch.edu.au/id/eprint/39101
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