The Theory Of Contrary Opinion: A Test Using Sentiment Indices In Futures Markets
The theory of contrary opinion predicts price reversals following extremes in market sentiment. This research tests a survey-based sentiment index's usefulness as a contrary indicator across 28 U.S. futures markets. Using rigorous time-series tests, the sentiment index displays only a sporadic and marginal ability to predict returns, and in those instances the pattern is one of return continuation--not reversals. Therefore, futures traders who rely solely upon sentiment indices as contrary indicators may be misguided.
Volume (Year): 21 (2003)
Issue (Month): 1 ()
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"Noise Trader Risk in Financial Markets,"
Journal of Political Economy,
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