Guzman, Giselle C. (2007): Using sentiment 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 to predict GDP growth and stock returns 
Language:  English 
Keywords:  sentiment; surveys; expectations; GDP growth; stock returns; smallcap stocks, Efficient Markets Hypothesis; anomalies; predictability; economic growth; principal components analysis; signal extraction; composite factors; synthetic variables 
Subjects:  Y  Miscellaneous Categories > Y4  Dissertations (unclassified) > Y40  Dissertations (unclassified) C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C52  Model Evaluation, Validation, and Selection E  Macroeconomics and Monetary Economics > E2  Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21  Consumption ; Saving ; Wealth D  Microeconomics > D5  General Equilibrium and Disequilibrium > D53  Financial Markets 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 C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods G  Financial Economics > G1  General Financial Markets > G14  Information and Market Efficiency ; Event Studies ; Insider Trading D  Microeconomics > D1  Household Behavior and Family Economics > D11  Consumer Economics: Theory C  Mathematical and Quantitative Methods > C8  Data Collection and Data Estimation Methodology ; Computer Programs > C82  Methodology for Collecting, Estimating, and Organizing Macroeconomic Data ; Data Access C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63  Computational Techniques ; Simulation Modeling E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E51  Money Supply ; Credit ; Money Multipliers E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E44  Financial Markets and the Macroeconomy C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C13  Estimation: General D  Microeconomics > D0  General > D03  Behavioral Microeconomics: Underlying Principles E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E32  Business Fluctuations ; Cycles 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 D  Microeconomics > D1  Household Behavior and Family Economics > D12  Consumer Economics: Empirical Analysis D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D83  Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness ?? C42 ?? C  Mathematical and Quantitative Methods > C8  Data Collection and Data Estimation Methodology ; Computer Programs > C81  Methodology for Collecting, Estimating, and Organizing Microeconomic Data ; Data Access D  Microeconomics > D0  General > D01  Microeconomic Behavior: Underlying Principles C  Mathematical and Quantitative Methods > C0  General > C01  Econometrics 
Item ID:  40203 
Depositing User:  Giselle Guzman 
Date Deposited:  20. Jul 2012 18:39 
Last Modified:  13. Sep 2015 06:40 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/40203 
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