*3.2. Data*

The data span from January 1990–December 2014 (300 months) for the U.S. example, whereas the European example range from June 2001 through April 2017 (191 months). The European sample is unfortunately quite limited since the data are not available before the selected start point for all the components of the variables considered. As for the U.S. example, the length of the sample ends in 2014, because the data for the (Baker and Wurgler 2006, 2007) investor sentiment and the aligned investor sentiment calculated by (Huang et al. 2014) are available only until that year.

The dataset for the analysis in the U.S. market consists of the following variables:


Therefore, our sample includes four indirect measures and two direct measures of sentiment. The indirect measures of sentiment are downloaded from the Guofu Zhou website.

On the other hand, the dataset for the European consists of the following variables:


• *Ifo Business Climate Index*, IFO: dealing with the assessments of business situation and future expectations, it is calculated from surveys on di fferent sectors from enterprises, such as manufacturing, construction, wholesaling and retailing, over a six-month horizon.

Therefore, the European example includes only direct measures of sentiment.

Our list of control for the U.S. stock market includes the 15 economic variables which are popular stock return predictors and are directly linked to economic fundamentals and risk aversion. We use the updated data From (Welch and Goyal 2008). Most of the predictors fall into four broad categories, namely: (i) valuation ratios capturing some measure of 'fundamentals' to market value such as the dividend yield, the earnings–price ratio, the 10-year earnings–price ratio or the book-to-market ratio; (ii) measures of bond yields capturing level e ffects (the three-month T-bill rate and the yield on long-term governmen<sup>t</sup> bonds), slope e ffects (the term spread) and default risk e ffects (the default yield spread, defined as the yield spread between BAA and AAA rated corporate bonds, and the default return spread, defined as the di fference between the yield on long-term corporate and governmen<sup>t</sup> bonds); (iii) estimates of equity risk, such as the long-term return and stock variance (a volatility estimate based on daily squared returns); (iv) three corporate finance variables, namely the dividend payou<sup>t</sup> ratio (the log of the dividend–earnings ratio), net equity expansion (the ratio of 12-month net issues by NYSE-listed stocks over the year-end market capitalization) and the percentage of equity issuance (the ratio of equity issuing activity as a fraction of total issuing activity). Finally, we consider a macroeconomic variable, inflation, defined as the rate of change in the consumer price index, and the net payou<sup>t</sup> measure, which is computed as the ratio between dividends and net equity repurchases (repurchases minus issuances) over the last 12 months and the current stock price. As in (Welch and Goyal 2008), lag inflation is lagged an extra month to account for the delay in CPI releases.

For the European exercise, we could not collect all the 15 predictors and have eight variables: the dividend yield, the earnings–price ratio, the book-to-market ratio, the short-term interest rate, the long-term yield, the term spread, the default risk, the default return spread (where 10-years German bund rates are used as the governmen<sup>t</sup> rate), stock variance (European VIX, VSTOXX), and inflation.
