Decomposing the Effect of Consumer Sentiment News - Evidence from US Stock and Stock Index Futures Markets

Abstract

We examine the announcement effects of consumer sentiment on US stock and stock futures markets. First, we find that the consumer sentiment announcement has valuable information content. Second, an asymmetric response is observed for “good” versus “bad” sentiment news. Specifically, when a lower (higher) than previous month consumer sentiment index is announced, equity and futures markets experience a significant negative announcement day (no) effect. This supports the “negativity effect” (identified from the psychology literature). Third, the effect of negative consumer sentiment announcements is evident in salient stocks rather than in sentiment prone stocks. This supports the availability heuristic.

Keywords: investor sentiment, stock market returns, market efficiency

JEL Classification: G14