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Using Sentiment and Momentum to Predict Stock Returns
Studies that seek to forecast stock price movements often consider measures of market sentiment or stock return momentum as predictors. Recent research shows that a multiplicative combination of sentiment and momentum can help predict the return on the Standard & Poor?s 500 stock index over the next month. This predictive power derives mainly from periods when sentiment has been declining over the past year and recent return momentum is negative?periods that coincide with an increase in investor attention to the stock market as measured by a Google search volume index.
AUTHORS: Lansing, Kevin J.; Tubbs, Michael
Valuation Ratios for Households and Businesses
Current valuation ratios for U.S. equities and household net worth are high relative to historical benchmarks. The cyclically adjusted price-to-earnings ratio reached its third highest level on record recently, and the ratio of household net worth to disposable income, which includes a broad set of household assets, stands at a record high. Such extreme values of these ratios have historically been followed by reversions toward their long-run averages. However, other current factors, such as low interest rates, caution against bearish forecasts.
AUTHORS: Shultz, Patrick; Mertens, Thomas M.; Tubbs, Michael