Stock Market's responses to intraday investor sentiment

We investigate the effect of intraday sentiment on subsequent stock returns. Mispricing caused by intraday sentiment is not corrected immediately; rather, it lasts for about 30 min. After 30 min, however, investor sentiment negatively affects stock returns, suggesting that mispriced stocks are at least partially but not entirely adjusted back to their fundamental values. We also show that the effect of intraday sentiment depends on the degree of arbitrage. Intraday sentiment has little effect on firms that are easy to arbitrage. For these firms, the difference in the one-minute returns of firms with high and low sentiment is nearly zero, implying that any mispricing caused by intraday sentiment is immediately corrected for this group of firms. In contrast, among firms that are hard to arbitrage, the difference in the returns of firms with high and low sentiment lasts for about half an hour. This difference in the effect of intraday sentiment is not caused by the firms' liquidities.