The chapter discusses the impact of investor sentiment on asset valuation, focusing on the relationship between sentiment and market pricing errors. The authors use survey data on investor sentiment, specifically the bull-bear spread from Investor's Intelligence, to analyze the effects of sentiment on asset prices. They find that high levels of sentiment are associated with market overvaluation, and that this overvaluation is followed by low long-run returns as the market corrects to its intrinsic value. The results are robust to controlling for other factors that predict stock returns, such as dividend yield and Fama-French factors. The chapter also examines the cointegration between market and model valuations, finding that sentiment is a significant explanatory variable in the error correction model. The findings suggest that investor sentiment plays a crucial role in asset pricing, driving prices above or below fundamental values over extended periods.The chapter discusses the impact of investor sentiment on asset valuation, focusing on the relationship between sentiment and market pricing errors. The authors use survey data on investor sentiment, specifically the bull-bear spread from Investor's Intelligence, to analyze the effects of sentiment on asset prices. They find that high levels of sentiment are associated with market overvaluation, and that this overvaluation is followed by low long-run returns as the market corrects to its intrinsic value. The results are robust to controlling for other factors that predict stock returns, such as dividend yield and Fama-French factors. The chapter also examines the cointegration between market and model valuations, finding that sentiment is a significant explanatory variable in the error correction model. The findings suggest that investor sentiment plays a crucial role in asset pricing, driving prices above or below fundamental values over extended periods.