High market beta stocks experience overpricing in periods of high market sentiment, while traditional beta pricing prevails in periods of low market sentiment (Antoniou et al., 2016). I conjecture that the negative (positive) relationship between market beta and expected return in high (low) market sentiment periods is driven by the stocks that are more sensitive to market sentiment than the stocks that are less sensitive to market sentiment. Using non-financial common stocks listed on the NYSE and NASDAQ between 1980 to 2017, I weakly confirm this conjecture in my univariate results. However, the differential effects of the most and least sentiment sensitive stocks on the market beta-return relationship are not significant in a regression framework.
