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Validating CNN Fear and Greed Index as Return Predictor

Steve LeCompte | | Posted in: Sentiment Indicators

Guide Market Indicators Sentiment

Key Insight

CNN Fear and Greed Index levels showed a slight, persistent negative association with future SPY returns, and next-day SPY returns did not vary systematically across deciles of daily F&G change (Apr 7, 2021–Aug 12, 2024; daily; descriptive, not a trading test).

"CNN Fear and Greed Index as Return Predictor" reports findings from a draft study that the CNN Fear and Greed Index (F&G) may be useful for U.S. stock index timing. The authors of that paper generously provided their hand-collected sample of daily CNN F&G levels for 4/7/21 through 3/8/24. We partly validate and extend that sample using daily values from the Timeline view of Fear & Greed Index as of 8/12/24. We then relate daily CNN F&G and daily changes in CNN F&G to daily returns for SPDR S&P 500 ETF Trust (SPY). Using the validated/extended sample of daily CNN F&G and contemporaneous daily dividend-adjusted prices for SPY during 4/7/21 through 8/12/24, we find that:

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