The relationship between market sentiment and equity premium: an artificial neural network analysis

Nik R. Hassan and Shee Q. Wong

International Journal of Electronic Finance, 2008, vol. 2, issue 2, 227-240

Abstract: This study explores whether market sentiment is significantly related to equity premium levels using the Artificial Neural Network (ANN) framework with both the Conference Board CCI and the Michigan Consumer Sentiment Index (CSI) as market sentiment proxies. Contrary to several studies, our results showed that after controlling for a standard set of fundamental variables, there is little evidence to support a strong direct relationship between market sentiment and equity premium. However, these results agree with other empirical studies that find market sentiment to be a reflection of market fundamentals, which in turn actually affect equity premium levels.

Keywords: equity premium forecasting; artificial neural networks; ANNs; market sentiment; consumer sentiment; fundamentals; nonlinearity. (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijelfi:v:2:y:2008:i:2:p:227-240

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