Measuring Stock Market Investor Sentiment

Francisca Beer and Mohamed Zouaoui
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Francisca Beer: CSUSB - California State University [San Bernardino]
Mohamed Zouaoui: LEG - Laboratoire d'Economie et de Gestion - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique

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Abstract: Recently, investor sentiment measures have become one of the more widely examined areas in behavioral finance. A number of measures have been developed in the literature without having been fully validated, and therefore leaving in question which measure should be used for empirical exploration. The purpose of this study is to examine the relative performance of a number of popular measures in predicting stock returns and to test the relative efficacy of a hybrid approach. Using a panel of investor sentiment measures, we develop a new measure of sentiment which combines direct and indirect sentiment measures. Our results show that our composite sentiment index affects the returns of stocks hard to value and difficult to arbitrage consistent with the predictions of noise traders models. Finally, we find that our composite index has a better predictive ability than the alternative sentiment measures largely used in the literature.

Keywords: Composite Sentiment Index; Investor Sentiment Measures; Measuring Stock Market Investor Sentiment (search for similar items in EconPapers)
Date: 2012-12
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Citations: View citations in EconPapers (4)

Published in Journal of Applied Business Research, 2012, 29 (1), pp.51-68. ⟨10.19030/jabr.v29i1.7555⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01346766

DOI: 10.19030/jabr.v29i1.7555

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