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Can fund sentiment beta predict future performance?


Using both actual and bootstrapped fund samples, this paper examines whether fund sentiment beta (FSB) can be used to predict future fund performance, whether FSB exhibits persistence across time periods, and whether FSB affects fund selectivity. We find that FSB has no significant effect on either current or subsequent fund performance and that it does not exhibit any persistence across time. Also, we find no evidence of a relationship between FSB and fund selectivity. Contrary to prior research, these findings suggest that an FSB-based strategy is unlikely to be a profitable strategy for fund managers.

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  1. Also, the Baker and Wurgler (2006) sentiment index data is available up to December 2018.

  2. Originally the Baker and Wurgler (2006) index had six variables. However, NYSE turnover ratio has been dropped in the newest update of the sentiment index.

  3. Jeffrey Wurgler’s website is

  4. The market models used in estimating alpha include the CAPM, the Fama and French (1993) three-factor model, and the Carhart (1997) four-factor model. We also used CAPM and the Fama–French 3-factor model in unreported tests. The results are similar to those based on the Carhart 4-factor model.

  5. Table 2 ignores the statistical significance of the FSBs.

  6. Given the fund sample size, we think that quintiles fit better for this study than quartiles or deciles. Also, Glushkov (2006) used quintile rank to construct five stock portfolios based on sentiment beta.

  7. The cumulative distribution function (CDF) calculates the cumulative probability for the t-value of fund alpha. We use it to compare the probability of earning abnormal fund return between portfolios Q1 and Q5.


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Correspondence to Qiang Bu.

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Bu, Q., Stalebrink, O.J. Can fund sentiment beta predict future performance?. J Asset Manag 21, 524–534 (2020).

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  • Fund sentiment beta
  • BW index
  • Persistence
  • Selectivity

JEL Classification

  • G11