Time and frequency relationship between household investors' sentiment index and US industry stock returns

We construct the household investors' sentiment index for the US using weekly Google trend data. We examine the causal effects between the sentiment index and US industry returns using wavelet Granger causality and frequency domain causality approaches. Our results confirm causality from FEARS to stock returns in the short and medium terms. The sentiment index has causal effects on and stronger correlation with the overall stock market index, financials, technology, health care, and consumer discretionary sectors. Also, although the household investors' sentiment index causes almost all sector stock returns, not all sector stock returns cause the household investors' sentiment index.