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Do Measures of Investor Sentiment Predict Returns?

Robert Neal and Simon M. Wheatley
The Journal of Financial and Quantitative Analysis
Vol. 33, No. 4 (Dec., 1998), pp. 523-547
DOI: 10.2307/2331130
Stable URL: http://www.jstor.org/stable/2331130
Page Count: 25
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Abstract

It has long been market folklore that the best time to buy stocks is when individual investors are bearish, and the best time to sell is when individual investors are bullish. We examine the forecast power of three popular measures of individual investor sentiment: the level of discounts on closed-end funds, the ratio of odd-lot sales to purchases, and net mutual fund redemptions. Using data from 1933 to 1993, we find that fund discounts and net redemptions predict the size premium, the difference between small and large firm returns, but little evidence that the odd-lot ratio predicts returns.

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