Centre d’Etudes et de Recherches Appliquées à la Gestion

The link between asset valuation and investor sentiment became the subject of considerable deliberation among financial economists. We test the impact of investor sentiment on a panel of international stock markets. Specifically, we examine the influence of investor sentiment on the probability of stock market crises. We find that investor sentiment increases the probability of occurrence of stock market crises within a one-year horizon. The impact of investor sentiment on the stock markets is more pronounced in countries that are culturally more prone to herd-like behavior, overreaction and low institutional involvement