We analyse the relationship between large cap returns and sentiment indexes, using a Capital Asset
Pricing Model (CAPM ) framework. We try to provide a better explanation of asset prices and their
deviations from standard theories by means of sentiment indicators, assuming the latter being measures
of the very inclination to speculate. Therefore, when sentiment is high, investor demand for speculative
investment is high; conversely when it is low, investor demand for speculative investments is low.
Unlike other studies, based on proxies, we use the European Sentiment Indicator and its constituents,
based on direct surveys, to assess business and consumer confidence