Does investor sentiment create value for asset pricing? An empirical investigation of the <scp>KOSPI</scp>‐listed firms

This paper proposes the development of an improved investor sentiment index (ISI) to apply on Korea Composite Stock Price Index (KOSPI) and assess vitality sentiment-based factor for explaining critical equity market anomalies in asset pricing Korea. We follow methodology Huang et al. (2015), align index, employ partial least squares method overcome drawbacks pioneering BM Baker Wurgler (2006, 2007). Based daily trading price data individual companies from 2006 2021, we construct a novel ISI, which has robust predicting ability aggregate stock return, comparison other popular measures contemporary finance literature. Furthermore, this captures small firm effect that modelling, containing more topical Fama–French five modelling (5F-FF), struggled illuminate completely. Given our results have shown Korean as fairly well-organised terms availability intelligence, speculate important managerial implications financial regulators countries holding similar economic features.