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The impact of investor sentiment on the German stock market

Finter, Philipp
Niessen-Ruenzi, Alexandra
Ruenzi, Stefan
Year of Publication: 
Series/Report no.: 
CFR working paper 10-03
This paper investigates whether investor sentiment can explain stock returns on the German stock market. Based on a principal component analysis, we construct a sentiment indicator that condenses information of several well-known sentiment proxies. We show that this indicator explains the return spread between sentiment stocks and stocks that are not sensitive to sentiment fluctuations. Specifically, stocks that are difficult to arbitrage and hard to value are sensitive to the indicator. However, we do not find much predictive power of sentiment for future stock returns. This is consistent with sentiment being of minor importance on the German stock market that is characterized by a low fraction of retail investors.
Investor Sentiment
Stock Returns
German Stock Market
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Document Type: 
Working Paper

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