The Role of Momentum, Sentiment, and Economic Fundamentals in Forecasting Bear Stock Market

This article examines the role of market momentum, investor sentiment, and economic fundamentals in forecasting bear stock market. We find strong evidence that bear stock market is predictable by market momentum and investor sentiment in full‐sample and out‐of‐sample analyses. Most economic fundamental variables lose their out‐of‐sample significance once we control for market momentum and investor sentiment. However, the inclusion of economic fundamentals can improve the economic value of the forecasting model in our trading experiments.