Do investors care about sentiment?

Results of recent research indicate small investor sentiment, as measured by the change in the discount on closed-end funds, is an important factor in the return generating process for common stocks. We find no evidence of it being an important factor in the return generating process. We next examine its impact on expected returns and whether one set of firms with high sensitivity to this factor-closed-end funds-offers, and can be expected to offer, a higher expected return. Our findings do not support small investor sentiment as a priced factor, either in common stocks or closed-end funds.