Quant-leaning CXO advisory has done an interesting analysis of blogger sentiment data collected by Ticker Sense.
Ticker Sense conducts monthly polls of ‘the web’s most prominent investment bloggers,’ asking them what’s their view on the S&P 500 for the next 30 days.
Thing is, while everyone loves to berate Wall St. analysts for bad calls (ourselves included) it turns out that blogger sentiment is a pretty bad indicator for the market as well. Actually, it’s a reverse indicator:
Based on 169 observations, the data indicate that bloggers in aggregate cannot predict the direction of the stock market. The Pearson correlation for the distribution is -0.16, and the R-squared statistic is 0.02. Blogger sentiment explains (in a contrarian direction) 2% of the variation in stock returns over the next month.
In summary, analysis of Ticker Sense Blogger Sentiment Poll results indicates that aggregate blogger sentiment is perhaps, like many sentiment indicators, somewhat contrarian with respect to future stock market behaviour.
In fact, CXO also found that the blogosphere tends to base its forward market view simply on what just happened in the market. If the market is rising, it’s bullish. If it just fell, it’s bearish.
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 185 poll-to-poll changes, there is some support for this hypothesis.
So if all else fails, just do the opposite of what the aggregate blogosphere is thinking. Ever notice how many bearish and negative bloggers surfaced and became popular after the crisis (Like, say Zero Hedge). The rise of ZH might have been a huge buy signal, and if ZH’s popularity ever dies out (we hope it doesn’t), then be very worried.
You can chase up CXO’s maths via their site here.
Business Insider Emails & Alerts
Site highlights each day to your inbox.