Investor Sentiment Measures

51 Pages Posted: 3 Aug 2006 Last revised: 1 Jul 2010

See all articles by Lily Xiaoli Qiu

Lily Xiaoli Qiu

Brown University - Department of Economics

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2004

Abstract

This paper compares investor sentiment measures based on consumer confidence surveys with measures extracted from the closed-end fund discount (CEFD). Our evidence suggests that these two kinds of sentiment measures do not correlate well with one another. For a short 2 - 4 year period in which we have direct investor sentiment survey data from UBS/Gallup, only the consumer confidence correlates well with investor sentiment. Further, only the consumer confidence based measure can robustly explain the small-firm return spread and the return spread between stocks held disproportionately by retail investors and those held by institutional investors. Surprisingly, there is even a hint that the consumer confidence measure can explain closed-end fund IPO activity, while the CEFD cannot. In sum, our evidence supports the view that sentiment plays a role in financial markets, but that the CEFD may be the wrong measure of sentiment.

Suggested Citation

Qiu, Lily Xiaoli and Welch, Ivo, Investor Sentiment Measures (September 2004). NBER Working Paper No. w10794. Available at SSRN: https://ssrn.com/abstract=595193

Lily Xiaoli Qiu

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

Ivo Welch (Contact Author)

University of California, Los Angeles (UCLA) ( email )

110 Westwood Plaza
C519
Los Angeles, CA 90095-1481
United States
310-825-2508 (Phone)

HOME PAGE: http://www.ivo-welch.info

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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