Anomalies and Investor Sentiment: Empirical Evidences in the Brazilian Market

Abstract

This study examines the relationship investor sentiment and value anomalies in Brazil. In addition, it analyzed if pricing deviations caused by investors with optimistic views are different from those cauded by pessimistic investors. The sample included all non-financial firms listed on the B3 (Brasil, Bolsa, Balcão) stock exchange from July 1999 to June 2014. We used the Principal Component Analysis multivariate technique to capture the component common to four different proxies for investor sentiment. The study empirically tested the index series and its variation on the return series of Long-Short portfolios of 12 anomaly-based estrategies. The study found taht the measure of the sentiment index had a partial explanatory power for the anomalies only when included in the CAPM. Yet, when using the index sentiment changes as an explanatory variable, the study found a relationship with future returns, robust to all risk factors. Thus, ir is possible to relate investor sentiment index to anomaly-based portfolio returns. When anaçyzing average returns adter optimistic and pessimistic periods, the values we found in our empirical test were not statiscally significant enough to infer the possible existence of short-sale contrainsts.