The sentiment of newsletter writers, whether bullish or bearish, does not
forecast future returns, but past returns and the volatility of those returns do
affect sentiment. High returns over four-week periods are associated with a
migration of newsletter writers from the bearish camp into the bullish camp.
High returns over periods of 26 and 52 weeks are associated with “nervous
bullishness”—a migration of newsletter writers from the bearish
camp into both the bullish and the correction camps. High volatility, instead of
scaring newsletter writers into bearishness, reduces the effects of both
positive and negative returns on sentiment. Also, contrary to a popular
hypothesis, the crash of 1987 had no significant effect on the pattern of
forecasts.