Barberis, NicholasShleifer, AndreiVishny, Robert2017-03-091998Barberis, Nicholas, Andrei Shleifer, and Robert Vishny. 1998. A Model of Investor Sentiment. Journal of Financial Economics 49, no. 3: 307-343.0304-405Xhttp://nrs.harvard.edu/urn-3:HUL.InstRepos:30747159Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earning announcements; and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment--that is, of how investors form beliefs--that is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.en-USJournal Article2017-03-09