A TRMI-based bond Fear Index is associated with higher future 1-year excess returns on 2- to 5-year U.S. Treasuries over the 1-year rate (out-of-sample R-squared 0.22–0.30; Jan 1998–Dec 2022; expanding monthly regressions; descriptive; not a trading test).
Does investor fear level predict U.S. Treasury instrument returns? In their September 2024 paper entitled "Fear in the 'Fearless' Treasury Market", Tianyang Wang, Yuanzhi Wang, Qunzi Zhang and Guofu Zhou examine how investor fear relates to future returns on U.S. Treasuries. They define bond risk premiums by duration as annual returns in excess of the 1-year interest rate. To measure investor fear level, they employ Thomson Reuters MarketPsych Indices (TRMI), which apply natural language processing to assess investor fear, positivity, negativity, optimism, pessimism, trust, stress, surprise, credit risk and volatility from 42,000 news and 800 social media inputs. They construct a bond market Fear Index by combining these assessments and suppressing noise via a 12-month moving average. They decompose the Fear Index by duration (short-term vs. long-term), depth (intense vs. mild) and source (news vs. social media). They compare their bond Fear Index with other sentiment metrics and examine its import globally. Using end-of-month prices for 1-year to 5-year zero-coupon U.S. Treasury notes, contemporaneous TRMI outputs and data for other potential bond return predictors during January 1998 through December 2022, they find that:
Testing a Proxy for the Goldman Sachs Panic Index PremiumClaude-estimated Goldman Sachs Panic Index values (pixel-reconstructed from a chart) showed high readings (above 8) followed by 1.2% average next-week S&P 500 returns vs…
AI-simulated CFO Sentiment PremiumGPT-5.4-simulated CFO optimism correlates with actual Duke-Federal Reserve CFO Survey responses (LLM mean 56.6 vs actual 60.1; regression coefficient over six standard errors from…
CFO U.S. Economic Sentiment and Stock Market Returns PremiumCFO average U.S. economic sentiment shows little ability to predict S&P 500 returns; correlations with next-four-quarter returns are very weak and negative, while change…
How Are Sentiment-driven ETFs Doing? PremiumAn equal-weighted average of three sentiment ETFs (BUZZ, MOOD, NEWZ; monthly rebalanced) underperformed VTI (1.0% vs 10.7% CAGR; MaxDD -51% vs -25%; sample periods…
Goldman Sachs Panic Index Proxy PremiumA VIX-percentile Panic Index Proxy (trailing 2-year rank, 0–100) shows weak lead-lag association with daily S&P 500 returns, with very high and very low…
