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Dispersion in news sentiment and corporate bond returns |
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| Affiliation: | 1. School of Mathematics, Southwest Jiaotong University, Chengdu, China;2. School of Finance, Renmin University of China, Beijing, China;3. School of Finance, Nanjing University of Finance and Economics, Nanjing, China;1. Université de Montréal, Canada;2. HEC Montréal, Canada;1. Hull University Business School, University of Hull, Cottingham Road, Hull HU6 7RX, United Kingdom;2. School of Business and Economics, Loughborough University, Loughborough LE11 3TU, United Kingdom;3. School of Business, University of Leicester, University Road, Leicester LE1 7RH, United Kingdom |
| Abstract: | We construct a news sentiment index at the firm level by using textual analysis of news articles and find that dispersion in news sentiment is a significant predictor of corporate bond returns. Bonds of firms with high dispersion in news sentiment have a highly significant average return of 7.38 percent. A portfolio that longs bonds with high dispersion in news sentiments and shorts bonds with low dispersion earns an average biweekly return of 8.53 percent. This finding is in line with an argument that dispersion in news sentiment is a proxy for future cash flow uncertainty. |
| Keywords: | Corporate bonds Credit risk News sentiment |
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