The paper proposes a dynamic factor model to augment the conventional three factor Fama and French – CAPM, by introducing two distinct latent variables which constitute investor behavior i.e. market sentiment and herding. Our analysis suggests that both factors significantly impact the asset...

The paper aims to study the dynamic investor behavior and how it helps explain variation in stock returns. We propose a dynamic factor model to extract distinct latent factors representing fluctuations in asset returns due to changes in fundamentals and investor behavior. We study investor...