Investor sentiment and industry returns

This paper investigates the interaction between investor sentiment and industry performance. Investor sentiment has a widespread and systematic effect on performance, and predicts short-term mispricing at industry level. Predictable long-term reversals are weaker. We find limited evidence of cross-sectional industry differences. Moreover, there is no relationship between investor sentiment and industry characteristics that proxy valuation uncertainty. Results generally show that investor sentiment has a market-wide effect, questioning merit of industry timing strategy based on sentiment.