Investor sentiment and stock market anomalies in Australia

By constructing the first Australian investor sentiment index, this study explores the role of sentiment in explaining stock market anomalies. The Australian investor sentiment index is in line with the fluctuation of global economic trends and is highly correlated with the US sentiment index. We also explore the explanatory power of investor sentiment over Australian stock market anomalies. Our findings underscore the importance of investor sentiment in Australia, whereby anomaly returns are stronger following high sentiment periods. The short legs of each strategy account for a larger proportion of anomaly returns when investor sentiment increases. Further, sentiment does not significantly influence returns on the long legs of anomalies.