ECIN Replication Package for "Re-examining Investor Sentiment and Stock Returns: A Replication and Extension of Baker & Wurgler (2006)"

This study replicates and extends Baker and Wurgler’s (2006) analysis of investor sentiment’s impact on stock returns. We confirm their findings by showing the significant cross-sectional effect of sentiment in both their original sample (1963–2002) and a new sample (2002–2023). Expanding the scope, we introduce a monthly sentiment measure and analyze the U.S. and Chinese markets (2002–2023). Our results reveal that the predictive strength of sentiment indicators shift or invert over time. In the Chinese market, the expected cross-sectional effects of sentiment disappear when the foundational premise - variance in stock valuation and arbitrage difficulty - is not met.