THE THEORY OF CONTRARY OPINION: A TEST USING SENTIMENT INDICES IN FUTURES MARKETS

Dwight R. Sanders, Scott H. Irwin and Raymond M. Leuthold

Journal of Agribusiness, 2003, vol. 21, issue 1

Abstract: 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.

Keywords: bullish consensus; contrary opinion; market sentiment; Marketing (search for similar items in EconPapers)
Date: 2003
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