The Relationship Between CNN Money’s US Stock Market Fear and Greed Index and US Stock Indices

CNN Money developed the original US Stock Market Fear and Greed Index in 2012, using seven data points to measure stock market performance. The ability of the Fear and Greed Index to impact on future values of the various stock indices appears to be dependent on the observation period and the stock index concerned. The impact of changes in the Fear and Greed Index is almost negligible, but when there is a relationship it is when the change covers five or ten days. The only time there is a consistent relationship over the full 22 months (June 2021 to March 2023) is when the value of the stock indices are split into the three levels of the Fear and Greed Index and analysed separately. All five stock indices indicate a positive relationship at the greed level with the Fear and Greed Index but only three, NYSE Composite, DJ Composite and the Small-cap Index indicate a relationship at the fear level which in all cases is lower than at the greed level. Two factors stand out, the shorter the observation period the more likely a relationship with the Fear and Greed Index will be observed, which may be missed if the observation period is too long and stock index values are more likely to follow the Fear and Greed Index when it is at the greed level as relationships at the fear level are weaker