Investor Sentiment and Asset Returns: Actions Speak Louder than Words

The article studies daily predictability of investor sentiment across four major asset classes and compares sentiment measures based on news and social media with those based on trade information. For the majority of assets, trade-based sentiment measures outperform their text-based equivalents for both in-sample and out-of-sample predictions. This outperformance is particularly noticeable in long-term forecasts. Real-time mean-variance investors, however, can only achieve economic gains using Bitcoin trade sentiment, suggesting the challenge of transforming sentiment into daily profitable trading strategies.