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Sentiment and sign predictability of stock returns

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  • Pönkä, Harri

Abstract

We explore the relationship between investor, consumer, and business sentiment and the direction of excess stock market returns in the US. Our findings indicate that measures of investor sentiment are useful predictors, even after controlling for the predictive ability of commonly used predictors of stock returns and for the effects of recession. Measures of consumer and business sentiment do not hold similar predictive ability. The findings hold both in- and out-of-sample.

Suggested Citation

  • Pönkä, Harri, 2017. "Sentiment and sign predictability of stock returns," MPRA Paper 81861, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:81861
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    More about this item

    Keywords

    Equity return; Probit model; Sentiment variable; Sign predictability;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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