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Sentiment and sign predictability of stock returns

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  • Harri Pönkä

    (Ministry of Finance, Finland)

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

  • Harri Pönkä, 2018. "Sentiment and sign predictability of stock returns," Economics Bulletin, AccessEcon, vol. 38(3), pages 1676-1684.
    • Handle: RePEc:ebl:ecbull:eb-17-00948
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    More about this item

    Keywords

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

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • G1 - Financial Economics - - General Financial Markets

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