Investor sentiment aligned: A powerful predictor of stock returns

• Main Authors: HUANG, Dashan, JIANG, Fuwei, TU, Jun, ZHOU, Guofu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Investor Sentiment; Asset Pricing; Return Predictability; Cash Flow; Discount Rate; Corporate Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3775; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4774/viewcontent/HuangJiangTuZhou_2015_InvestorSentimentAligned.pdf
• Institution: Singapore Management University

We propose a new investor sentiment index that is aligned with the purpose of predicting the aggregate stock market. By eliminating a common noise component in sentiment proxies, the new index has much greater predictive power than existing sentiment indices have both in and out of sample, and the p...