Chapter 7. Sentiment
After studying this chapter, you should
• Understand what the term sentiment means
• Understand the concept of contrary opinion
• Be familiar with methods for measuring sentiment of uninformed and informed market players
As a general rule, it is foolish to do just what other people are doing, because there are almost sure to be too many people doing the same thing. (William Stanley Jevons [1835–1882], as quoted in Neill, 1997, p. 13)
The focus of this chapter is market sentiment. Market sentiment refers to the mood of market participants. At times, investors are acting on feelings of fear and pessimism. At other times, hope, overconfidence, and greed characterize investor psychology. Investors react emotionally ...