Sentiment-return relation and stock price synchronicity: Firm-level versus market-level sentiment

This study examines how investor sentiment affects stock returns under different levels of stock price synchronicity. Firm-level (market-level) sentiment has a stronger impact on low- (high-) synchronicity stocks. While firm-level sentiment effects remain stable over time, market-level sentiment effects intensify across all stocks during the pandemic. Uninformed investors consistently rely more on firm-level sentiment when trading low-synchronicity stocks but shift to market-level sentiment when deciding on their participation during the pandemic. These results remain robust after controlling firm size and calendar effects, and applying an alternative market-level sentiment measure.