The Theory of Contrary Opinion: A Test Using Sentiment Indices in Futures Markets

The theory of contrary opinion predicts price reversals following extremes in market sentiment. This research tests a survey-based sentiment index's usefulness as a contrary indicator across 28 U.S. futures markets. Using rigorous time-series tests, the sentiment index displays only a sporadic and marginal ability to predict returns, and in those instances the pattern is one of return continuation—not reversals. Therefore, futures traders who rely solely upon sentiment indices as contrary indicators may be misguided.