Sentiment, Customer Satisfaction and Stock Returns: higher Performance During Pessimistic Periods

Motivated by a lack of understanding for how investors’ emotional states affect their perceptions and valuations of customer satisfaction, this study employs a direct sentiment index to examine whether and how sentiment influences the stock market’s reaction to customer satisfaction. The evidence suggests that it is possible to beat the market consistently with investment strategies based on customer satisfaction, especially when investors hold their pessimistic beliefs about the market. The main contribution of this study is that firms with higher intangible assets such as having highly satisfied customers provide firms an insurance-like protection against market pessimism.