CNN Fear and Greed Index as Return Predictor

Is the CNN Fear and Greed Index useful for predicting asset returns? In the July 2024 draft of their paper entitled "The CNN Fear and Greed Index as a Predictor of Us Equity Index Returns", flagged by a subscriber, Hugh Farrell and Fergal O'Connor use regressions of hand-collected data to investigate whether the index reliably predicts returns on S&P 500, Nasdaq Composite and Russell 3000 stock indexes and gold. The CNN Fear and Greed Index is the simple average of seven factors (market momentum, stock price strength, stock price breadth, put-to-call options ratio, VIX to measure market volatility, safe haven demand and junk bond demand), each scaled to a range of to 100. The value 1 (100) indicates extreme fear (greed). Using daily CNN Fear and Greed Index levels from a GitHub repository during January 2011 through mid-September 2020 and from the Wayback Machine during early April 2021 through early March 2024 (intervening data are unavailable), and contemporaneous daily stock index levels and gold price, they find that: