Business confidence is a bad indicator - doesn’t explain stock or economic growth.

Table 8 shows that the mean and median values of the adjustedR2of the risk-free rate RF are 0.52% and0.17%, respectively. These values are close to those of the BW index. As for the lagged explanatory power, the adjustedR2of RF goes up steadily from 1 lag to 3lags. However, the lagged explanatory power of RF is significantly lower than that of the BW index. This result shows that the BW index is an improved sentiment indicator of the stock returns. On the other hand, the UMI exhibits no explanatory power to either the contemporaneous or lagged stock returns. The adjustedR2of the UMI is all negative. I also tested the explanatory power of the OECD consumer confidence index and the OECD business confidence index. Neither of them has a positive adjusted R2 on the contemporary or lagged stock returns. From Table 8, I can infer that the explanatory power of the indirect sentiment measures on stock returns is relatively stable. The difference across different measures mainly lies in the level of the explanatory power. On the other hand, the direct sentiment measures exhibit a different pattern. Compared with the AAII indexes, the other direct sentiment measures do not display any explanatory power. This indicates that the survey sample and the survey questions are essential to successfully reflect the financial market sentiment. Currently, The AAII indexes and the BW index are the best direct and indirect sentiment measures in explaining stock returns. Further research is needed to shed more light on this topic.