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Forecasting Returns with Fundamentals-Removed Investor Sentiment

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  • Adam Stivers

    (DeGroote School of Business, McMaster University, Hamilton, ON L8S 4M4, Canada)

Abstract

The Baker and Wurgler (2006) sentiment index purports to measure irrational investor sentiment, while the University of Michigan Consumer Sentiment Index is designed to largely reflect fundamentals. Removing this fundamental component from the Baker and Wurgler index creates an index of investor sentiment that may better capture irrational sentiment. This new index predicts returns better than the original Baker and Wurgler index as well as the alternative Baker and Wurgler sentiment index.

Suggested Citation

  • Adam Stivers, 2015. "Forecasting Returns with Fundamentals-Removed Investor Sentiment," IJFS, MDPI, vol. 3(3), pages 1-23, July.
    • Handle: RePEc:gam:jijfss:v:3:y:2015:i:3:p:319-341:d:53228
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    References listed on IDEAS

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    1. Marwane El Alaoui & Elie Bouri & Nehme Azoury, 2020. "The Determinants of the U.S. Consumer Sentiment: Linear and Nonlinear Models," IJFS, MDPI, vol. 8(3), pages 1-13, July.

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