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Forecasting Returns with Fundamentals-Removed Investor Sentiment

DeGroote School of Business, McMaster University, Hamilton, ON L8S 4M4, Canada
Academic Editor: Nicholas Apergis
Int. J. Financial Stud. 2015, 3(3), 319-341; https://doi.org/10.3390/ijfs3030319
Received: 23 May 2015 / Revised: 9 July 2015 / Accepted: 13 July 2015 / Published: 27 July 2015
The Baker and Wurgler (2006) sentiment index purports to measure irrational investor sentiment, while the University of Michigan Consumer Sentiment Index is designed to largely reflect fundamentals. Removing this fundamental component from the Baker and Wurgler index creates an index of investor sentiment that may better capture irrational sentiment. This new index predicts returns better than the original Baker and Wurgler index as well as the alternative Baker and Wurgler sentiment index. View Full-Text
Keywords: investor sentiment; return predictability; stock market; consumer confidence investor sentiment; return predictability; stock market; consumer confidence
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Stivers, A. Forecasting Returns with Fundamentals-Removed Investor Sentiment. Int. J. Financial Stud. 2015, 3, 319-341.

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