It has long been market folklore that the best time to buy stocks is when i
ndividual investors are bearish, and the best time to sell is when individu
al investors are bullish. We examine the forecast power of three popular me
asures of individual investor sentiment: the level of discounts on closed-e
nd funds, the ratio of odd-lot sales to purchases, and net mutual fund rede
mptions. Using data from 1933 to 1993, we find that fund discounts and net
redemptions predict the size premium, the difference between small and larg
e firm returns, but little evidence that the odd-lot ratio predicts returns
.