Professor Laura Starks, McCombs School of Business, University of Texas at Austin
Recent work suggests that sentiment traders shift from less volatile to speculative stocks when sentiment increases. Given that the market clearing condition requires a buyer for every seller, we exploit these cross-sectional patterns and changes in share ownership to test whether investor sentiment metrics capture institutional or individual investors’ demand shocks. In contrast to theoretical assumptions and common perceptions, we find no evidence that individual investors’ trading is responsible for sentiment induced demand shocks and mispricing. If the commonly used sentiment metrics truly capture investor sentiment, then institutional investors are the sentiment traders whose demand shocks drive prices from value.
Laura Starks is the Charles E. and Sarah M. Seay Regents Chair of Finance, Chairman of the Department of Finance, and Director of the AIM Investment Center in the McCombs School of Business at the University of Texas at Austin. Her teaching interests include global financial strategies, investments, valuation theory, and financial management. Her recent research focuses on the evaluation, compensation and performance of portfolio managers and the role of institutional investors in markets and corporate governance.