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The sentiment of newsletter writers, whether bullish or bearish, does not forecast future returns, but past returns and the volatility of those returns do affect sentiment. High returns over four-week periods are associated with a migration of newsletter writers from the bearish camp into the bullish camp. High returns over periods of 26 and 52 weeks are associated with “nervous bullishness”—a migration of newsletter writers from the bearish camp into both the bullish and the correction camps. High volatility, instead of scaring newsletter writers into bearishness, reduces the effects of both positive and negative returns on sentiment. Also, contrary to a popular hypothesis, the crash of 1987 had no significant effect on the pattern of forecasts.
Clarke et al. (Fri,) studied this question.