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Are prominent stock market bloggers in aggregate able to predict the market's direction? The Ticker Sense Blogger Sentiment Poll "is a survey of the web's most prominent investment bloggers, asking 'What is your outlook on the U.S. stock market for the next 30 days?'" (bullish, bearish or neutral) on a weekly basis. The site currently lists 21 active prognosticators. Participation has varied over time. Based on results from Guru Grades and other stock market sentiment studies, we hypothesize that blogger sentiment: (1) tends to react to what just happened in the stock market; and, (2) does not predict stock market behavior. Using the 102 aggregate measurements from the poll since inception, we find that...
Because Ticker Sense collects data weekly, we look at weekly measurements and changes in weekly measurements. Because the poll question asks for a 30-day outlook, we test the forecasts against stock market behavior four weeks into the future. We use the S&P 500 index to represent the U.S. stock market. Because polling takes place Thursday-Sunday, we use the coincident Friday close to represent the state of the stock market for each poll. For example, the close of 1239 on Friday, 7/11/08 coincides with poll results for Monday, 7/14/08. We use [% Bullish] minus [% Bearish] as the net sentiment measure for each poll.
The following chart compares the coincident S&P 500 index and net blogger sentiment over the past 106 weeks (there were no surveys for 11/27/06, 1/1/07, 11/19/07 and 7/7/08). Net blogger sentiment is mostly bearish during July 2006-May 2007, mostly bullish during June 2007-April 2008 and mostly bearish since. On these visually comparable scales, blogger sentiment is much more volatile than the stock market. The fairly large week-to-week swings in net blogger sentiment suggest either that the bloggers are very sensitive to changes in market conditions, or that participation in polling varies considerably across weeks. A persistent change in participation could explain switches between mostly bullish and mostly bearish outlooks.
For a more precise test of the relationship, we look at poll-to-poll changes in net blogger sentiment versus associated stock market returns.
The following scatter plot relates poll-to-poll changes in net blogger sentiment to weekly changes in the S&P 500 index for concurrent intervals. If bloggers as a group react to what just happened in the stock market, a best-fit line would run from the lower left to the upper right. Based on 92 poll-to-poll changes, there is some support for this hypothesis. The Pearson correlation for these two series is 0.31. The R-squared statistic for the relationship is 0.09, indicating that the change in the stock market over the past week explains 9% of the change in blogger sentiment during that week.
How well does net blogger sentiment predict future stock returns?
The next scatter plot relates the 4-week future change in the S&P 500 index to net blogger sentiment.
Based on 99 observations, the data indicate that bloggers in aggregate cannot predict the direction of the stock market. The Pearson correlation for the distribution is -0.12, suggesting that bloggers as a group lean very slightly the wrong way with respect to future stock market direction. However, the R-squared statistic is 0.01, meaning that net blogger sentiment explains only about 1% of stock returns over the next month. As sample size has grown, these statistics have varied (generally trending from contrary to non-predictive).
In summary, analysis of Ticker Sense Blogger Sentiment Poll results suggests that aggregate blogger sentiment is largely non-predictive for future stock market direction.
For related research, see Blog Synthesis: Sentimental Journey.
