Claudio Boido

CAPM with Sentiment

We analyse the relationship between large cap returns and sentiment indexes, using a Capital Asset Pricing Model (CAPM) framework. We try to provide a better explanation of asset prices and their deviations from standard theories by means of sentiment indicators, assuming the latter being measures of the very inclination to speculate. Therefore, when sentiment is high, investor demand for speculative investment is high; conversely when it is low, investor demand for speculative investments is low. Unlike other studies, based on proxies, we use the European Sentiment Indicator and its constituents, based on direct surveys, to assess business and consumer confidence.

CAPM with Sentiment: The Efficient Market Hypothesis Spiced Up with Sentiment

We analyse the relationship between large cap returns and sentiment indexes, using a Capital Asset Pricing Model (CAPM) framework. We try to provide a better explanation of asset prices and their deviations from standard theories by means of sentiment indicators, assuming the latter being measures of the very inclination to speculate. Therefore, when sentiment is high, investor demand for speculative investment is high; conversely when it is low, investor demand for speculative investments is low. Unlike other studies, based on proxies, we use the European Sentiment Indicator and its constituents, based on direct surveys, to assess business and consumer confidence.

Traditional and Alternative Risk: An Application to Hedge Fund Returns

We analyse the evolution of the hedge fund industry and try to assess whether this alternative investment class makes sense over the traditional one. We are concerned with the impact of the crisis. Common sense tells us that that during phases of market euphoria, possibly due to over-optimism, investors may be attracted by potentially high returns promised by the leveraged structures and the aggressive investment policies of this class of funds. When the downturns hit, managerial opacity heightened by lack of regulations, scarce liquidity and level of risks (supposedly) higher than market portfolio can trigger severe losses in investors’ portfolios. Thereupon, we tested empirically whether bear markets have a stronger impact on performances of these funds when compared with traditional investment classes and, dealing in terms of relative performances and losses, our results do not always comply with the common wisdom. Instrumental to this we introduce a specific metric for assessing hedge fund performance, comprising both the relative the advantage and risk of the alternative investment over the traditional one.