Overnight returns of industry exchange-traded funds, investor sentiment, and futures market returns

This study investigates whether investor sentiment estimated by overnight returns of industry exchange-traded funds (ETFs) affects Volatility Index (VIX) futures and stock index futures returns. Our empirical results indicate that high overnight returns of industry ETFs are associated with sentiment-based trading. The results also show that investor sentiment, as measured by the relative comovements of overnight returns of industry ETFs, Granger-causes VIX futures and stock index futures returns, but not vice versa. Finally, investor sentiment, as measured by the relative comovements, displays statistically and economically significant out-of-sample predictive power for VIX futures and stock index futures returns.