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Do Measures of Investor Sentiment Predict Returns?

Published online by Cambridge University Press:  06 April 2009

Robert Neal  and
Simon M. Wheatley
Robert Neal
Affiliation:
School of Business, Indiana University, 801 W. Michigan St., Indianapolis, IN 46202
Simon M. Wheatley
Affiliation:
Australian Graduate School of Management, University of New South Wales, Kensington, NSW, Australia
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Abstract

It has long been market folklore that the best time to buy stocks is when individual investors are bearish, and the best time to sell is when individual investors are bullish. We examine the forecast power of three popular measures of individual investor sentiment: the level of discounts on closed-end funds, the ratio of odd-lot sales to purchases, and net mutual fund redemptions. Using data from 1933 to 1993, we find that fund discounts and net redemptions predict the size premium, the difference between small and large firm returns, but little evidence that the odd-lot ratio predicts returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 33 , Issue 4 , December 1998 , pp. 523 - 547
Copyright
Copyright © School of Business Administration, University of Washington 1998

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