sentix in Working Papers


sentix stellt seine Daten für wissenschaftliche Arbeiten bereit und unterstützt Studenten und wissenschaftliche Mitarbeiter in ihren Forschungsarbeiten.

Inzwischen sind eine Vielzahl an akademischen Arbeiten unter Berücksichtigung der sentix Daten entstanden:

Titel / Autor
Journal of Forecasting

Business cycle forecasts and their implications for high frequency stock market returns

von Horst Entorf, Anne Gross, Christian Steiner

This article contributes to the literature on business cycle forecasts ...

This article contributes to the literature on business cycle forecasts and their impact on asset prices by investigating how the 15-second Xetra DAX returns reflect the monthly announcements of the two best-known business cycle forecasts for Germany, i.e., the Ifo Business Climate Index and the ZEW Indicator of Economic Sentiment. The analysis disentangles 'good' macroeconomics news from 'bad' news and, simultaneously, considers time intervals with and without confounding announcements from other sources. Releases from both institutes lead to an immediate response of returns occurring 15 seconds after the announcements, i.e. within the first possible time interval. Announcements of both institutes are also clearly and immediately reflected in the volatility, which remains at a significantly higher level for approximately 2 minutes. Findings can be used to improve high-frequency forecasts in stock markets

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Verschiedene Instrumente zur Aktienanalyse in Verbindung mit Behavioral Finance

von Johannes Braun

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Working Paper

Institutional and individual sentiment: Smart money and noise trader risk?

von Maik Schmeling

Using a new data set on investor sentiment ...

Using a new data set on investor sentiment, we show that institutional and individual sentiment seem to proxy for smart money and noise trader risk, respectively. First, using bias-adjusted long-horizon regressions, we show that institutional sentiment forecasts stock market returns at intermediate horizons correctly, whereas individuals consistently get the direction wrong. Second, even the simplest possible trading strategies based on investor sentiment show clear tendencies toward being profitable after controlling for systematic risk. Finally, IV regressions show that institutional investors take into account expected individual sentiment when forming their expectations, in a way that is consistent with the view that individual investors can be a proxy for noise trader risk. However, there is evidence of structural change.

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Working Paper

Are professional investors sophisticated?

von Lukas Menkhoff, Maik Schmeling, Ulrich Schmidt

Existing empirical evidence ...

Existing empirical evidence is inconclusive on whether professional investors show sophisticated behavior or not, a question which is at the heart of market efficiency. This ambiguous evidence is mostly based on trading data or laboratory evidence, which each has its limitations. We complement these approaches by conducting a survey of 500 investors, including several measures of sophistication, three relevant groups of investors and essential control variables. We find that both professional investors and laymen do indeed show unsophisticated investment behavior on aggregate. Furthermore, while some professional investors - institutional investors - behave at least more sophisticated than laymen, other professionals - investment advisors - seem to do even worse.

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Powerpoint Präsentation der Autoren

Working Paper

Not so Dumb Money: The Prognostic Power of Investor Sentiment over Time

von Jördis Hengelbrock Erik Theissen Christian Westheide

Recent empirical research suggests ...

Recent empirical research suggests that measures of investor sentiment have predictive power for future stock returns at intermediate and long horizons. Given that sentiment indicators are widely published, smart investors should exploit the information conveyed by the indicator and thus trigger an immediate market response to the publication of the sentiment indicator. The present paper is the first to empirically analyze whether this immediate response can be identified in the data. We use survey-based sentiment indicators from two countries (Germany and the US). Consistent with previous research we find predictability at intermediate horizons. However, the predictability in the US disappears after 1994. Using event study methodology we find that the publication of sentiment indicators affects market returns. The sign of this immediate response is the same as the sign of the intermediate horizon predictability. This is consistent with sentiment being related to mispricing but is inconsistent with the sentiment indicator providing information about future expected returns.

Working Paper

Overconfidence, Experience, and Professionalism: An Experimental Study

von Lukas Menkoff, Maik Schmeling, Ulrich Schmidt

This paper presents an online-experiment ...

This paper presents an online-experiment on overconfidence in the context of financial markets. Our subject pool consists of institutional investors, investment advisors and individual investors, all of them being registered users of a large online platform for market sentiment data. Due to their registration, several socioeconomic characteristics of participants can be controlled for in our analysis. It turns out that there are stable differences in overconfidence between the three investor groups. Moreover, investment experience and age have a significant impact on the degree of overconfidence which goes surprisingly in opposite direction. We argue that these results have important implications for studies analyzing the impact of experience on behavior in (financial) markets.

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Working Paper

On the Predictive Power of Sentiment - Why Institutional Investors are Worth Their Pay

von Bernhard Zwergel, Christian Klein

We use a unique dataset ...

We use a unique dataset of private and institutional investors' sentiments to describe their forecasting behavior and to develop a trading strategy based on sentiment. We show that professional analysts are indeed able to forecast future price movements in the medium term (about 6 months in advance). Private investors are not skilled at predicting price movements; we even find evidence that suggests that their sentiment may be a contra indicator. Neither institutional nor private investors can correctly forecast returns a month in advance. It seems that for this kind of short-term prediction, private and institutional investors heavily rely on the past weeks' and months' returns. Applying our trading strategy on out-of-sample data, delivers mixed results. We conclude that institutional investors' sentiment is useful when forecasting returns, especially in respect of their home market.

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Working Paper

Beyond Fundamentals: Investor Sentiment and Exchange Rate Forecasting

von Sebastian Heiden, Christian Klein, Bernhard Zwergel

This paper examines the relation ...

This paper examines the relation between investor sentiment and exchange rate movements. We use a unique dataset of private and institutional investors' sentiment and discover that institutional sentiment significantly predicts returns over medium-term horizons in the EUR/USD market. While institutional investors seem to correctly identify the medium-run direction of this market, private investors' sentiment emerges as a contrarian indicator at first sight, however, its predictive power fluctuates heavily and is sample dependent. Our results point towards local investors having an informational advantage in exchange rate forecasting. We test for economic relevance with a simple but realistic out-of-sample trading strategy which yields significant results.

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Working Paper

Published stock recommendations as institutional investor sentiment in the near-term stock market

von Nico Singer, Frank Dreher, Saskia Laser

This paper investigates the role ...

This paper investigates the role of published stock recommendations as institutional investor sentiment in the near-term German stock market using stock recommendations published in both print and online media. In line with extant literature for other countries, vector autoregressive analysis reveals that past stock returns drive today's sentiment, but not the other way around. We further document substantial empirical evidence that sentiment based on stock recommendations published online drives its print media counterpart, which is due to the delay financial news are printed and distributed in newspapers.

Research Paper

Who's a Pretty Boy Then? Or Beauty Contests, Rationality and Greater Fools

von James Montier

We have played a classic Keynes' beauty contest ...

We have played a classic Keynes' beauty contest with over 1000 professional investors. We find that on average professional investors are using between one and two steps of strategic thinking in forming their expectations. We also find that many investors suffer the curse of knowledge and end up either picking zero or severely underestimating the irrationality of other players. These results speak directly to the ability of investors to exit the market before the mass exodus. We find, unsurprisingly, that only a very small minority show the required level of strategic thinking to beat the gun.

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Working Paper

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

von Shumi M. Akhtar II, Robert W. Faff, Barry R. Oliver, Avanidhar Subrahmanyam

We examine the announcement effects of consumer sentiment ...

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.

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Working Paper

On Individual and Institutional Noise Trading

von Rob Beaumont, Marco van Daele, Bart Frijns, Thorsten Lehnert

Previous research suggests that individual investor sentiment ...

Previous research suggests that individual investor sentiment has incremental explanatory power for returns of small cap stocks, value stocks, stocks with low institutional ownership, and stocks with lower prices (Kumar and Lee (2003)) and that there is a strong link between institutional sentiment and the returns of large stocks (Brown and Cliff (2004)). With respect to return volatility, Jackson (2003a,b) found that larger trading share of individuals in certain stocks does not increase their subsequent volatility; however, the opposite is true for institutional participation, which increases conditional volatility. We propose an integrated framework that jointly tests for the effects of individual as well as institutional sentiment on return and volatility. Using implicit measures of sentiment for the German stock market over the period 02/2000 until 04/2005, our results suggest that institutional sentiment has only minor incremental explanatory power for returns and conditional volatility of large cap stocks, but we find strong evidence that individual sentiment is the important market-wide risk factor and does affect the return and conditional volatility of large as well as small cap stocks.

Empirical Economics

Sentiment dynamics and stock returns: the case of the German stock market

von Thomas Lux

We use weekly survey data ...

We use weekly survey data on short-term and medium-term sentiment of German investors in order to study the causal relationship between investors' mood and subsequent stock price changes. In contrast to extant literature for other countries, a trivariate vector autoregression for short-run sentiment, medium-run sentiment, and stock index returns allows to reject exogeneity of returns. Depending on the chosen VAR specification, returns are found to either follow a feedback process caused by medium-run sentiment, or returns form a simultaneous systems together with the two sentiment measures.An out-of-sample forecasting experiment on the base of estimated subset VAR models shows significant exploitable linear structure. However, trading experiments do not yield convincing evidence of significant economic gains from the VAR forecasts, and it appears that predictability of returns from sentiment decreases during the recent market gyrations.

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An emprirical analysis of Behavioral Finance theories in international equity markets

von Maik Schmeling

Working Paper

The Impact of Investor Sentiment on the German Stock Market

von Philipp Finter, Alexandra Niessen-Ruenzi, Stefan Ruenzi

This paper investigates whether investor sentiment ...

This paper investigates whether investor sentiment can explain stock returns on the German stock market. Based on a principal component analysis, we construct a sentiment indicator that condenses information of several well-known sentiment proxies. We show that this indicator explains the return spread between sentiment stocks and stocks that are not sensitive to sentiment fluctuations. Specifically, stocks that are difficult to arbitrage and hard to value are sensitive to the indicator. However, we do not find much predictive power of sentiment for future stock returns. This is consistent with sentiment being of minor importance on the German stock market that is characterized by a low fraction of retail investors.

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Working Paper

The Intraday Bitcoin Response to Tether Minting and Burning Events: Asymmetry, Investor Sentiment, and “Whale Alerts” on Twitter

von Aman Saggu

Tether Limited has the sole authority to create ...

Tether Limited has the sole authority to create (mint) and destroy (burn) Tether stablecoins (USD₮). This paper investigates Bitcoin's response to USD₮ supply change events between 2014 and 2021 and identifies an interesting asymmetry between Bitcoin's responses to USD₮ minting and burning events. Bitcoin responds positively to USD₮ minting events over 5- to 30-minute event windows, but this response begins declining after 60 minutes. State-dependence is also demonstrated, with Bitcoin prices exhibiting a greater increase when the corresponding USD₮ minting event coincides with positive investor sentiment and is announced to the public by data service provider, Whale Alert, on Twitter.

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Working Paper

Relative Sentiment and Machine Learning for Tactical Asset Allocation

von Raymond Micaletti

We examine Sentix sentiment indices for use...

We examine Sentix sentiment indices for use in tactical asset allocation. In particular, we construct monthly relative sentiment factors for the U.S., Europe, Japan, and Asia ex-Japan by taking the difference in 6-month economic expectations between each region's institutional and individual investors. These factors (along with one-month forward equity returns) then serve as inputs to a wide array of machine learning algorithms. Employing combinatorial cross-validation and adjusting for data snooping, we find relative sentiment factors have robust and significant predictive power in all four regions; that they surpass both standalone sentiment and time-series momentum in terms of informational content; and that they demonstrate the ability to identify the subsequent best- and worst-performing global equity markets from along a cross-section. The results are consistent with previous findings on relative sentiment, discovered using unrelated datasets.

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 Working Paper

Treasury Return Predictability and Investor Sentiment

von Chen Gu u.a.

We document that the Treasury market investor sentiment ...

We document that the Treasury market investor sentiment (TSENT) of institutional investors is a powerful predictor of bond risk premia. Specifically, TSENT positively predicts Treasury bond excess returns in- and out-of-sample. The forecasting gains of TSENT are incremental to that in conventional bond return predictors: Fama-Bliss forward spreads (FB), the Cochrane and Piazzesi (2005) forward rate factor (CP), and the Ludvigson and Ng (2009) macro factor (LN), as well as equity market sentiment proxies such as the investor sentiment index of Baker and Wurgler (2006) and the PLS sentiment index of Huang, Jiang, Tu, and Zhou (2015). Asset allocation analysis indicates the forecasting power of TSENT is economically valuable to investors. Finally, we show that the time-series bond risk premia predictability associated with TSENT relates to its predictive power for macroeconomic performance, such as payroll employment, unemployment rate, and industrial production.

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