With the consumer confidence index as a measure of sentiment, this paper investigates the effect of investor sentiment on stock returns and volatilities in 34 countries. Our empirical evidence suggests a mispricing asymmetry in emerging markets. Stock prices in emerging markets are not statistically significantly overpriced but underpriced while both can happen in developed markets. This may be due to a lack of investor confidence in emerging markets relative to the investors of developed markets. Further investigation finds that there exists reduction in volatility in developed markets following low sentiment periods. 

Keywords: Mispricing; Reversal; Sentiment
JEL Classification: G14, G15​