EconPapers    
Economics at your fingertips  
 

Composite survey sentiment as a predictor of future market returns: Evidence for German equity indices

Zuzana Rakovská
Authors registered in the RePEc Author Service: Zuzana Gric

International Review of Economics & Finance, 2021, vol. 73, issue C, 473-495

Abstract: In this paper, I construct a novel composite sentiment indicator which captures the irrational beliefs of a general population in Germany. This indicator is used to demonstrate that sentiment of a general public is responsible for temporary overreaction of the aggregate German stock market, but also its narrower segments embodied in four important equity indices from the DAX family. My results show that population-wide beliefs work as a contrarian predictor of future returns of German equity indices for horizons of six to twelve months. In addition, the out-of-sample framework is developed to underline the degree of improvement achieved by combining several survey-based measures into one composite sentiment indicator. The results reveal that the composite indicator exhibits a more accurate forecasting performance than the popular sentiment measure, consumer confidence.

Keywords: Composite indicatort; Consumer confidence; DAX indices; Return predictability; Sentiment (search for similar items in EconPapers)
JEL-codes: G17 G40 G41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056020303087
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Composite Survey Sentiment as a Predictor of Future Market Returns: Evidence for German Equity Indices (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:73:y:2021:i:c:p:473-495

DOI: 10.1016/j.iref.2020.12.022

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-01-10
Handle: RePEc:eee:reveco:v:73:y:2021:i:c:p:473-495