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The CNN Fear and Greed Index as a predictor of US equity index returns: Static and time-varying Granger causality
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Date
2024-12-01
Authors
Farrell, Hugh
O'Connor, Fergal
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier Inc.
Published Version
Abstract
We assess whether the CNN “Fear and Greed” Index can be used to predict returns on equity indices and gold. Using static tests, we find that the Fear and Greed Index Granger causes returns on the S&P 500, Nasdaq Composite and Russell 3000 indices in the first sample period (2011–2020), but not gold returns. Analysis from 2021 to 2024 indicates the Fear and Greed index Granger causes S&P 500 and Nasdaq Composite returns, but the relationship is considerably weaker. Using dynamic tests from Shi et al. (2020) we that show that these results may be driven by a stronger relationship existing pre-2014.
Description
Keywords
Fear and Greed , Granger causality , Equity indices , Time-varying Granger causality , Gold
Citation
Farrell, H. and O'Connor, F. (2024) 'The CNN Fear and Greed Index as a predictor of US equity index returns: Static and time-varying Granger causality', Finance Research Letters, 72, 106492 (7pp). https://doi.org/10.1016/j.frl.2024.106492