Aggregate investment and investor sentiment

Salman Arif, Charles M.C. Lee

Research output: Contribution to journalArticlepeer-review

90 Scopus citations


Using bottom-up information from corporate financial statements, we examine the relation between aggregate investment, future equity returns, and investor sentiment. Consistent with the business cycle literature, corporate investments peak during periods of positive sentiment, yet these periods are followed by lower equity returns. This pattern exists in most developed countries and survives controls for discount rates, equity flows, valuation multiples, operating accruals, and other investor sentiment measures. Higher aggregate investments also precede greater earnings disappointments, lower short-window earnings announcement returns, and lower macroeconomic growth. We conclude aggregate corporate investment is an alternative, and possibly sharper, measure of market-wide investor sentiment.

Original languageEnglish (US)
Pages (from-to)3241-3279
Number of pages39
JournalReview of Financial Studies
Issue number11
StatePublished - Nov 1 2014
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2014 The Author.


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