Investor Sentiment, Idiosyncratic Risk, and Stock Returns: Evidence from Australia

In the study, the link between idiosyncratic risk and excess return is discussed using a sample of common stocks in the Australian technology sector from January 2017 to December 2022. Furthermore, the investor sentiment variable is introduced to investigate the connection between idiosyncratic risk and excess return in both high and low investor sentiment volatility. The measurement of idiosyncratic risk follows previous studies using the fama-french three-factor model, and the correlation between idiosyncratic risk and excess return is measured using the firm-level Fama-Macbeth regressions model. The results show that the correlation is not statistically significant before the introduction of the investor sentiment variable. However, there is a significant positive correlation after the introduction of the investor sentiment variable.