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The CNN Fear and Greed Index as a predictor of US equity index returns: Static and time-varying Granger causality

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  • Farrell, Hugh
  • O'Connor, Fergal

Abstract

We assess whether the CNN “Fear and Greed” Index can be used to predict returns on equity indices and gold. Using static tests, we find that the Fear and Greed Index Granger causes returns on the S&P 500, Nasdaq Composite and Russell 3000 indices in the first sample period (2011–2020), but not gold returns. Analysis from 2021 to 2024 indicates the Fear and Greed index Granger causes S&P 500 and Nasdaq Composite returns, but the relationship is considerably weaker. Using dynamic tests from Shi et al. (2020) we that show that these results may be driven by a stronger relationship existing pre-2014.

Suggested Citation

  • Farrell, Hugh & O'Connor, Fergal, 2025. "The CNN Fear and Greed Index as a predictor of US equity index returns: Static and time-varying Granger causality," Finance Research Letters, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015216
    DOI: 10.1016/j.frl.2024.106492
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    1. Samet Gunay & Emrah Ismail Cevik & Mehmet Fatih Bugan & Sel Dibooglu & Mehmet Akif Destek, 2025. "Time and frequency domain relationship between investor sentiment and sectoral cryptocurrencies," Economic Change and Restructuring, Springer, vol. 58(3), pages 1-32, June.

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    More about this item

    Keywords

    Fear and Greed; Granger causality; Equity indices; Time-varying Granger causality; Gold;
    All these keywords.

    JEL classification:

    • G4 - Financial Economics - - Behavioral Finance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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