BOTW 6: AAII Redux

We build a relatively stable model using market implied reactions to the AAII survey

In our previous post on the American Association of Individual Investors (AAII) survey, we struggled to find much evidence of the survey's predictive power. However, there were some clues that the market reaction might indicate direction in the subsequent week. This artifact could indeed be the result of the upward path of the S&P 500 over the period we examined. Nonetheless, we noted that we'd need to test this further to see if there was something to this notion. Today, we plan to do just that.

As noted, the survey comes out every Thursday morning. Hence, the close-to-close returns from the Wednesday prior to the Thursday after the release should give one a clue to how the market responded to the survey. Now, we understand there will be many other factors at play, so this is a very broad approach. We could, of course, narrow it down to the overnight return, or the first half hour return. But the extra effort for such a higher level of detail would only be warranted if we can find something that looks promising in the first place. And in that regard, we show the chart from the last post that suggests some degree of follow-through.