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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- De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990.
"Noise Trader Risk in Financial Markets,"
3725552, Harvard University Department of Economics.
- De Bondt, Werner P. M., 1993. "Betting on trends: Intuitive forecasts of financial risk and return," International Journal of Forecasting, Elsevier, vol. 9(3), pages 355-371, November.
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