Forecasting Returns with Fundamentals-Removed Investor Sentiment

Adam Stivers
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Adam Stivers: DeGroote School of Business, McMaster University, Hamilton, ON L8S 4M4, Canada

IJFS, 2015, vol. 3, issue 3, 1-23

Abstract: The Baker and Wurgler (2006) sentiment index purports to measure irrational investor sentiment, while the University of Michigan Consumer Sentiment Index is designed to largely reflect fundamentals. Removing this fundamental component from the Baker and Wurgler index creates an index of investor sentiment that may better capture irrational sentiment. This new index predicts returns better than the original Baker and Wurgler index as well as the alternative Baker and Wurgler sentiment index.

Keywords: investor sentiment; return predictability; stock market; consumer confidence (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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