Retail Derivatives and Sentiment: A Sentiment Measure Constructed from Issuances of Retail Structured Equity Products

Brian J. Henderson, Neil D. Pearson, Li Wang

Research output: Contribution to journalArticlepeer-review

Abstract

We use retail structured equity product (SEP) issuances to construct a new sentiment measure for large capitalization stocks. The SEP sentiment measure predicts negative abnormal returns on the SEP reference stocks based on a variety of factor models, and also predicts returns in Fama-MacBeth regressions that include a wide range of covariates. Consistent with our interpretation that SEP issuances reflect investor sentiment, aggregate SEP issuances are highly correlated with the Baker-Wurgler sentiment index. Tobit regressions reveal that proxies for attention and sentiment predict SEP issuance volumes, providing additional evidence consistent with the hypothesis that SEP issuances reflect sentiment.

Original languageEnglish (US)
Pages (from-to)2365-2407
Number of pages43
JournalJournal of Finance
Volume78
Issue number4
DOIs
StatePublished - Aug 2023

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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