Most traders recognize that fear is a big factor when it comes to potential gains in most markets. This is especially true in equity markets. If there is no fear among market participants then, in the near term, one should expect limited upside or even negative returns.

How Investor Sentiment Affects Stock Market Returns

Investor Sentiment in the Stock Market

An examination of investor sentiment effect on G7 stock market returns

Relative Sentiment and Stock Returns

Investor Sentiment Effects in Stock markets

Stock Market Volatility, Excess Returns, and the Role of Investor Sentiment

Now that we understand that sentiment is a defining variable we must measure it using an accurate proxy. We must find a way to normalize it so we have a consistent measure that is usable across varying volatility conditions.