Measuring Market Sentiment and the Three Stock Market Crashes of the New York Stock Exchange

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Author	Percival S. Gabriel
ISSN	2307-2466
On Pages	539-555
Volume No.	2
Issue No.	8
Issue Date	January 01, 2021
Publishing Date	January 01, 2021
Keywords	market sentiment, weighted percentage change in negotiated factors, weighted percentage change in volume of transactions, unified line, standard line, angle of sweep

Abstract

This research embarked on the development of a method to determine and measure market sentiment or the bullishness-bearishness of the stock market. This was done using trigonometry by combining the percentage change in the stock market index and the percentage change in the volume of transactions. The method yielded a formula that unified the stock market index and volume of transactions and was tested on the three market crashes of 1987, 1989 and 1997 of the New York Stock Exchange. Then the data produced by the measurement were tested as to their randomness in regard to prediction of the Efficient Market Theory using autocorrelation. As envisioned, the lines yielded spikes in the bull region and dives in the bear area. The deep dive of the 1987 crash resulted in a spike of bullish sentiment but the spike was not as high compared to the 1989 and 1997 crashes which registered high bullish spikes due to slight dives in the bear region. The data produced by the measurement predominantly yielded insignificant autocorrelation coefficients which indicate randomness as the Efficient Market Theory would have predicted.

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