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Title: Sentimentum Investing: Improving Portfolio Returns by Incorporating Sentiment-Derived CAPS Stock Rankings into Momentum Trading
Authors: Heffernan, Sam
Advisors: Lord, Graham
Department: Economics
Class Year: 2014
Abstract: This study improves momentum portfolio returns by integrating sentiment‐derived stock ratings from The Motley Fool’s CAPS system into a relative value trading strategy. The results demonstrate that CAPS ratings can be an effective investment tool and that, in the context of momentum trading, investor sentiment is positively correlated with subsequent equity returns. In the four years following July 2009, the combined sentimentum portfolios recorded 6‐month average returns of 11.90% compared to 3.36% for the momentum strategy alone. The profitability of this strategy underscores the potential for online crowdsourced measures of investor sentiment to inform investment decisions and stands in contrast with the basic premises of the Efficient Market Hypothesis.
Extent: 70 pages
Type of Material: Princeton University Senior Theses
Language: en_US
Appears in Collections:Economics, 1927-2017

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