The active share of mutual funds drops significantly when investor sentiment is high, indicating that fund managers reduce their active stock selection and stay closer to their benchmarks during such periods. Our evidence is consistent with fund managers being sentiment-prone—challenging the...

We show that the returns of individual stocks become more synchronous with the aggregate market during periods of high investor sentiment. We also document that the effect of sentiment on stock return synchronicity is especially pronounced for small, young, volatile, non-dividend-paying and...