Part of the Behavioural Research in Finance research group seminar series.
Date/Time: Wednesday 1 November, 14:00 - 15:30
Venue: Room 4.25, Newcastle University Business School
Speaker: Sze (Janys) Nie, Newcastle University
A well-established investor sentiment index by Baker and Wurgler (2006, 2007) is well known to exhibit poor performance in the context of time-series forecasting of future stock returns. This is counterintuitive and at odds with the underlying theoretical considerations, as high(low) sentiment today should lead to high (low) returns today and low(high) returns in the future. In this study, we investigate one potential cause of its poor forecasting performance and propose an improved index which should exhibit superior forecasting ability. We analyse the performance of this new index in the time series context as well as in comparison with other measures of investor sentiment.