Investigating the effect of investor sentiment on the expected earnings growth rate

Several studies have examined the investor sentiment in the behavioral finance. But, most prior studies solely document the phenomenon that investor sentiment could affect stock price combined with accounting information and indicate the heterogeneity of the sentiment effect. However, the existing literature rarely provides a theoretical basis for the mechanism behind the effect of sentiment and the accounting information. Therefore, this paper the through theoretical basis effect of investor sentiment on the expected earnings growth rate analyzes the mechanism behind the effects of investor sentiment and accounting information on stock price based on the residual income valuation model. In order to reach this goal, the study has been carried out on a sample of 560 companies, during the 2009-2016 reporting period based on the Multivariate regression. The results show that higher sentiment leads to more optimistic expectations regarding future earnings growth and these optimistic expectations leads that investor sentiment changed the expected earnings growth rate, thus affecting the accounting information and stock price.