New Publications in International Review of Economics & Finance and International Review of Financial Analysis

We are pleased to share that our research fellow Thomas Walther has recently co-authored two papers published in renowned finance journals.

The article “Relative investor sentiment”, published in International Review of Economics & Finance, introduces a new investor sentiment index that is based on the differences between moments of realized stock returns and option-implied moments. The study validates this Relative Investor Sentiment index by showing that it aligns with established sentiment proxies, reproduces well-known patterns of stock market reactions to sentiment shocks, and is particularly pronounced in hard-to-arbitrage assets. Importantly, the research highlights that momentum strategies perform significantly better during periods of high sentiment but fare worse in low sentiment phases.
Link to artice

Published in International Review of Financial Analysis, the study “Reassessing the Illiquidity-Return Relationship: Evidence from Germany, the UK, and the U.S.” re-examines the link between market illiquidity and stock returns over the period from 1999 to 2022. Despite recent criticism of this relationship, the study confirms that illiquidity remains a key factor for explaining stock returns, especially when differentiating between stable and crisis periods. The findings reveal that unexpected illiquidity consistently exerts a negative effect on returns, while the role of expected illiquidity varies over time.
Link to artice