Volatility, Valuation Ratios, and Bubbles: An Empirical Measure of Market Sentiment

• 成果类型: Article
• 署名作者: Gao, Can; Martin, Ian W. R.
• 署名单位: Imperial College London; University of London; London School Economics & Political Science
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13068
• 发表日期: 2021
• 页码: 3211-3254
• 关键词: stock-market; long-run; asset; consumption; variables; Dividends; BEHAVIOR; returns; models

摘要

We define a sentiment indicator based on option prices, valuation ratios, and interest rates. The indicator can be interpreted as a lower bound on the expected growth in fundamentals that a rational investor would have to perceive to be happy to hold the market. The bound was unusually high in the late 1990s, reflecting dividend growth expectations that in our view were unreasonably optimistic. Our approach exploits two key ingredients. First, we derive a new valuation ratio decomposition that is related to the Campbell-Shiller loglinearization but that resembles the Gordon growth model more closely and has certain other advantages. Second, we introduce a volatility index that provides a lower bound on the market's expected log return.