Ian Cooper discusses the effect of sentiment on returns using a sample of upstream oil stocks where we have a good proxy for fundamental value. For this sample, the influence of sentiment is highly time-varying, appearing only after the post-2000 increased interest in oil-related assets. Contrary to the hard-to-arbitrage hypothesis, sentiment affects returns on these stocks principally through their fundamentals rather than through deviations from fundamentals.

Image courtesy of interviewee. October 19, 2017