[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-202112-105":59,"doc-detail-202112-en":131},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":124,"head_meta":126,"extra_data":128,"updated_unix":130},105,"en","a-battle-of-wills-the-joint-impact-of-sentiment-and-benchmarking-on-volatility-and-mispricing-april-2025","A Battle of Wills - The Joint Impact of Sentiment and Benchmarking on Volatility and Mispricing - April 2025","","Standard models link investor sentiment to higher volatility, but the empirical record shows a different pattern. The study develops a framework combining retail sentiment with institutional benchmarking concerns, showing how the two forces jointly alter the mapping from fundamental risk into return volatility. The resulting sentiment-volatility relation becomes asymmetric. The model also explains why intensified institutional benchmarking can reduce mispricing when sentiment is elevated. Using exogenous variation in benchmarking intensity, the paper provides causal evidence for volatility and mispricing effects across sentiment levels.",{"@graph":69,"@context":123},[70,84,106],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/a-battle-of-wills-the-joint-impact-of-sentiment-and-benchmarking-on-volatility-and-mispricing-april-2025/202112/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/a-battle-of-wills-the-joint-impact-of-sentiment-and-benchmarking-on-volatility-and-mispricing-april-2025/202112.png","ImageObject",300,407,{"name":92,"@type":93},"Clementine","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-29","2026-09-04",true,{"@type":102,"interactionType":103,"userInteractionCount":105},"InteractionCounter",{"@type":104},"ViewAction",13,{"@type":107,"mainEntity":108},"FAQPage",[109,115,119],{"name":110,"@type":111,"acceptedAnswer":112},"What discrepancy does the paper address regarding investor sentiment and volatility?","Question",{"text":113,"@type":114},"Standard models predict sentiment should be positively related to volatility, but empirical evidence shows otherwise. The paper reconciles this mismatch using a model that incorporates retail sentiment and institutional benchmarking.","Answer",{"name":116,"@type":111,"acceptedAnswer":117},"How do sentiment and institutional benchmarking interact in the model?",{"text":118,"@type":114},"Their interaction reshapes how fundamental risk translates into return volatility, producing an asymmetric relationship with sentiment.",{"name":120,"@type":111,"acceptedAnswer":121},"What causal evidence does the paper provide about institutions and mispricing?",{"text":122,"@type":114},"By using exogenous variation in institutions’ benchmarking intensity, the study provides causal evidence on how benchmarking affects volatility and on how sentiment and institutions affect mispricing across sentiment levels.","https://schema.org",{"og:url":83,"og:type":125,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":127,"canonical":83},"index,follow",{"doc_id":129,"site_id":62},202112,1788542429,{"code":4,"msg":5,"data":132},{"doc_id":129,"user_id":133,"nickname":92,"user_avatar":134,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":135,"file_id":136,"file_url":137,"file_type":138,"file_size":139,"view_count":105,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":140,"language":141,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":142,"faqs":143,"seo_title":144,"seo_description":67,"update_tm":130,"read_time":145,"preview_page_count":4},1374391974564,"https://ap-avatar.wpscdn.com/avatar/14000253aa45c000a9e?x-image-process=image/resize,m_fixed,w_180,h_180&k=1779874745381141002","A Battle of Wills: The Joint Impact of Sentiment and Benchmarking on Volatility and Mispricing ∗  \nLuis Goncalves-Pinto † Herv´e Roche ‡ Juan Sotes-Paladino §  \nApril 2025  \nABSTRACT  \nStandard models predict a positive relationship between investor sentiment and volatility, yet the empirical evidence suggests otherwise. We reconcile this discrepancy in a model with retail sentiment and institutional benchmarking. The interaction of these features reshapes how fundamental risk translates into return volatility, creating an asymmetric relationship with sentiment. It also explains why institutions can reduce mispricing under heightened sentiment.  \nUsing exogenous variation in institutions’ benchmarking intensity, we provide causal evidence on the predicted impact of institutions on volatility for different sentiment levels. We also offer evidence on the predicted effect of sentiment and institutions on mispricing.  \nKeywords: Sentiment, Excess Volatility, Mispricing, Benchmarking, Institutional Investors.  \nJEL Classification: G11, G12, G18, G41 .  \n∗We thank Antonio Gargano, Goutham Gopalakrishna (discussant), Jan Hanousek (discussant), Idan Hodor, and Fernando Zapatero for helpful comments and suggestions. The paper has also benefited from comments made at presentations at the 2024 NFA Annual Meeting, the USC Finance PhD Alumni Conference 2024, the Public Economic Theory 2023, the 2023 FMA European Conference, the EEA-ESEM 2023, the Universidad de los Andes, Chile, and the University of Chile – FEN. All errors are our own.  \n† University of New South Wales, School of Banking and Finance; Email: [l.goncalves-pinto@unsw.edu.au](l.goncalves-pinto@unsw.edu.au)  \n‡ Universidad de Chile, Facultad de Econom´ıa y Negocios; Email: [herve.roche11@gmail.com](herve.roche11@gmail.com)  \n§ Corresponding author. Universidad de los Andes, Chile, School of Business and Economics. Monse˜nor ´Alvaro del Portillo 12455, Las Condes, RM, Chile, [Email:](Email: jsotes@uandes.cl)[ jsotes@uandes.cl](Email: jsotes@uandes.cl)  \nA Battle of Wills: The Joint Impact of Sentiment and Benchmarking on Volatility and Mispricing  \nAbstract  \nStandard models predict a positive relationship between investor sentiment and volatility, yet the empirical evidence suggests otherwise. We reconcile this discrepancy in a model with retail sentiment and institutional benchmarking. The interaction of these features reshapes how fundamental risk translates into return volatility, creating an asymmetric relationship with sentiment. It also explains why institutions can reduce mispricing under heightened sentiment. Using exogenous variation in institutions’ benchmarking intensity, we provide causal evidence on the predicted impact of institutions on volatility for different sentiment levels. We also offer evidence on the predicted effect of sentiment and institutions on mispricing.  \n1 Introduction  \nA vast body of literature documents how psychological biases and cognitive limits can shape the investment behavior of individuals, introducing an element of irrationality, or “sentiment,” in financial markets.1 In the presence of frictions that limit the activity of rational market participants, this sentiment can create excess return volatility and systematic deviations of prices from fundamentals.2  \nAgainst this backdrop, the recent trend toward greater delegation of portfolios to institutional investors (“institutionalization”) raises new questions. Economic intuition suggests that, to the extent that institutional investors are sophisticated and less prone to committing systematic mistakes (“smart money”), the greater institutionalization of markets should help correct sentiment-driven distortions. However, recent theoretical and empirical findings suggest a more nuanced description of their investment behavior and potential impact on markets. First, Basak and Pavlova (2013) show that institutions’ performance concerns relative to benchmark indexes (“benchmarking concerns”","cbCaipa4fKHGVFeX","https://ap.wps.com/l/cbCaipa4fKHGVFeX","pdf",837729,66,"English","# Introduction\n## Background and Motivation\n## Empirical Motivation (Figure 1)","[{\"question\":\"What discrepancy does the paper address regarding investor sentiment and volatility?\",\"answer\":\"Standard models predict sentiment should be positively related to volatility, but empirical evidence shows otherwise. The paper reconciles this mismatch using a model that incorporates retail sentiment and institutional benchmarking.\"},{\"question\":\"How do sentiment and institutional benchmarking interact in the model?\",\"answer\":\"Their interaction reshapes how fundamental risk translates into return volatility, producing an asymmetric relationship with sentiment.\"},{\"question\":\"What causal evidence does the paper provide about institutions and mispricing?\",\"answer\":\"By using exogenous variation in institutions’ benchmarking intensity, the study provides causal evidence on how benchmarking affects volatility and on how sentiment and institutions affect mispricing across sentiment levels.\"}]","A Battle of Wills - The Joint Impact of Sentiment and Benchmarking on Volatility and Mispricing - April 2025 | PDF",166]