*Article* **Optimism in Financial Markets: Stock Market Returns and Investor Sentiments**

**Chiara Limongi Concetto 1,2 and Francesco Ravazzolo 1,3,\***


Received: 8 April 2019; Accepted: 7 May 2019; Published: 13 May 2019

**Abstract:** This paper investigates how investor sentiment a ffects stock market returns and evaluates the predictability power of sentiment indices on U.S. and EU stock market returns. As regards the American example, evidence shows that investor sentiment indices have an economic and statistical predictability power on stock market returns. Concerning the European market instead, investigation provides weak results. Moreover, comparing the two markets, where investor sentiment of U.S. market tries to predict the European stock market returns, and vice versa, the analyses indicate a spillover e ffect from the U.S. to Europe.

**Keywords:** Bayesian econometrics; portfolio choice; sentiments; stock market predictability

**JEL Classification:** C11; C22; G11; G12
