Using sentiment surveys to predict GDP growth and stock returns

Giselle Guzman

MPRA Paper from University Library of Munich, Germany

Abstract: This study sheds new light on the question of whether or not sentiment surveys, and the expectations derived from them, are relevant to forecasting economic growth and stock returns, and whether they contain information that is orthogonal to macroeconomic and financial data. I examine 16 sentiment surveys of distinct respondent universes and employ the technique of principal components analysis to extract the common signals from the surveys. I show that the ability of different population groups to anticipate correctly economic growth and excess stock returns is not identical, implying that not all sentiment is the same, although there exist some common components. I demonstrate that sentiment surveys have significant predictive power for both GDP growth and excess stock returns, and that the results are robust to the inclusion of information pertaining to the macroeconomic environment and momentum. Furthermore, the findings reject the conventional wisdom that the effect of sentiment is apparent exclusively in small-capitalization stocks.

Keywords: Sentiment; GDP; economic growth; stock returns; return anomaly; predictability; forecasting; principal components analysis; composite factor; surveys; sentiment factor; econometric models; household sentiment; consumer sentiment; business sentiment; asset pricing; alpha; excess returns; small-capitalization stocks; Efficient Markets Hypothesis; Rational Expectations Hypothesis (search for similar items in EconPapers)
JEL-codes: C01 C02 C12 C13 C22 C42 C43 C51 C53 C63 C81 C82 D03 D12 D53 D83 D84 E01 E17 E21 E27 E32 E37 E44 E47 E60 E66 G00 G01 G10 G12 G14 O40 Y40 (search for similar items in EconPapers)
Date: 2008-10-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published in The Making of National Economic Forecasts Edward Elgar Publishing LTD (2009): pp. 319-351

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https://mpra.ub.uni-muenchen.de/36653/1/MPRA_paper_36653.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/39893/2/MPRA_paper_39893.pdf revised version (application/pdf)

Related works:
Chapter: Using Sentiment Surveys to Predict GDP Growth and Stock Returns (2009)
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