Investor sentiment is one of the pillars of behavioral finance and defines the general attitude towards future market prices. Investors form their opinion based on facts and their gut feeling. Fundamental and technical factors are examples of facts, whereas stories and opinions of other investors are examples of narratives, which contribute to attitudes.
Investor sentiment is important because it affects the fundamental principles of asset pricing. There has been plentiful of evidence-based research published on the topic of investor sentiment. The consensus among researchers is that extreme readings of investor sentiment tend to be a