Guzman, Giselle C. (2008): Using sentiment surveys to predict GDP growth and stock returns. Published in: The Making of National Economic Forecasts No. Edward Elgar Publishing LTD (2009): pp. 319351.
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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 smallcapitalization stocks.
Item Type:  MPRA Paper 

Original Title:  Using sentiment surveys to predict GDP growth and stock returns 
Language:  English 
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; smallcapitalization stocks; Efficient Markets Hypothesis; Rational Expectations Hypothesis 
Subjects:  C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C51  Model Construction and Estimation E  Macroeconomics and Monetary Economics > E2  Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E21  Consumption; Saving; Wealth G  Financial Economics > G0  General > G00  General E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E47  Forecasting and Simulation: Models and Applications E  Macroeconomics and Monetary Economics > E6  Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E66  General Outlook and Conditions D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D84  Expectations; Speculations E  Macroeconomics and Monetary Economics > E1  General Aggregative Models > E17  Forecasting and Simulation: Models and Applications E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E44  Financial Markets and the Macroeconomy O  Economic Development, Technological Change, and Growth > O4  Economic Growth and Aggregate Productivity > O40  General G  Financial Economics > G0  General > G01  Financial Crises D  Microeconomics > D0  General > D03  Behavioral Economics; Underlying Principles C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C13  Estimation: General C  Mathematical and Quantitative Methods > C2  Single Equation Models; Single Variables > C22  TimeSeries Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D83  Search; Learning; Information and Knowledge; Communication; Belief C  Mathematical and Quantitative Methods > C8  Data Collection and Data Estimation Methodology; Computer Programs > C81  Methodology for Collecting, Estimating, and Organizing Microeconomic Data C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C42  Survey Methods E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications C  Mathematical and Quantitative Methods > C0  General > C01  Econometrics Y  Miscellaneous Categories > Y4  Dissertations (unclassified) > Y40  Dissertations (unclassified) C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C12  Hypothesis Testing: General E  Macroeconomics and Monetary Economics > E0  General > E01  Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts D  Microeconomics > D5  General Equilibrium and Disequilibrium > D53  Financial Markets E  Macroeconomics and Monetary Economics > E2  Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E27  Forecasting and Simulation: Models and Applications C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods G  Financial Economics > G1  General Financial Markets > G14  Information and Market Efficiency; Event Studies C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C43  Index Numbers and Aggregation C  Mathematical and Quantitative Methods > C8  Data Collection and Data Estimation Methodology; Computer Programs > C82  Methodology for Collecting, Estimating, and Organizing Macroeconomic Data C  Mathematical and Quantitative Methods > C6  Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C63  Computational Techniques; Simulation Modeling E  Macroeconomics and Monetary Economics > E6  Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E60  General G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing; Trading volume; Bond Interest Rates C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C53  Forecasting and Prediction Methods; Simulation Methods E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E32  Business Fluctuations; Cycles D  Microeconomics > D1  Household Behavior and Family Economics > D12  Consumer Economics: Empirical Analysis G  Financial Economics > G1  General Financial Markets > G10  General 
Item ID:  36653 
Depositing User:  Giselle Guzman 
Date Deposited:  14. Feb 2012 08:33 
Last Modified:  12. Feb 2013 15:21 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/36653 
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