AbstractThis paper investigates the interaction between investor sentiment and industry performance. Investor sentiment has a widespread and systematic effect on performance, and predicts short‐term mispricing at industry level. Predictable long‐term reversals are weaker. We find limited evidence of cross‐sectional industry differences. Moreover, there is no relationship between investor sentiment and industry characteristics that proxy valuation uncertainty. Results generally show that investor sentiment has a market‐wide effect, questioning merit of industry timing strategy based on sentiment.