Reprint of: Stock salience and the asymmetric market effect of consumer sentiment news

We document asymmetric announcement effects of consumer sentiment news on United States stock and stock futures markets. While a negative market effect occurs upon the release of bad sentiment news, there is no market reaction for the counterpart good news. This supports the “negativity effect” hypothesis. Notably, this effect seems most likely to occur in salient stocks, which is consistent with the availability heuristic.     

Investor sentiment and the stock market’s reaction to monetary policy

This paper shows that monetary policy decisions have a significant effect on investor sentiment. The effect of monetary news on sentiment depends on market conditions (bull versus bear market). We also find that monetary policy actions in bear market periods have a larger effect on stocks that are more sensitive to changes in investor sentiment and credit market conditions. Overall, the results show that investor sentiment plays a significant role in the effect of monetary policy on the stock market.     

Time-variation in the impact of news sentiment

Utilizing firm-specific news sentiment data provided by Thomson Reuters News Analytics, I construct aggregate measures to examine the relationship between news sentiment and stock market returns over the period 2004–2010. I find a highly significant relationship between aggregated measures of news sentiment and stock returns that fluctuates over time and by industry. I identify a link between the time-variation of news sentiment impact and industry beta, and determine that levels of investor sentiment (proxied by VIX) play an important role in explaining this variation.     

Sentiment stocks

To study how investor sentiment at the firm level affects stock returns, we match more than 58 million social media messages in China with listed firms and construct a measure of individual stock sentiment based on the tone of those messages. We document that positive investor sentiment predicts higher stock risk-adjusted returns in the very short term followed by price reversals. This association between stock sentiment and stock returns is not explained by observable stock characteristics, unobservable time-invariant characteristics, market-wide sentiment, overreaction to news, or changing investor attention. Consistent with theories of investor sentiment, we find that the link between sentiment and stock returns is mainly driven by positive sentiment and non-professional investors. Finally, exploiting a unique feature of the Chinese stock market, we are able to isolate the causal effect of sentiment on stock returns from confounding factors.     

How does news sentiment affect the states of Japanese stock return volatility?

This paper examines the impact of public news sentiment on the volatility states of firm-level returns on the Japanese Stock market. We firstly adopt a novel Markov Regime Switching Long Memory GARCH (MRS-LMGARCH), which is employed to estimate the latent volatility states of intraday stock return. By using the RavenPack Dow Jones News Analytics database, we fit discrete choice models to investigate the impact of news sentiment on changes of volatility states of the constituent stocks in the TOPIX Core 30 Index. Our findings suggest that news occurrence and sentiment, especially those of macro-economic news, are a key factor that significantly drives the volatility state of Japanese stock returns. This provides essential information for traders of the Japanese stock market to optimize their trading strategies and risk management plans to combat volatility.     

News sentiment and stock market volatility

Review of Quantitative Finance and Accounting - This study investigates the effect of news sentiment on stock market volatility using the Generalized Autoregressive Conditional Heteroskedasticity...     

Market Response to Investor Sentiment

This paper reconsiders the effect of investor sentiment on stock prices. Our main contribution is that, in addition to the intermediate term return predictability, we also analyze the immediate price reaction to the publication of survey‐based investor sentiment indicators. We find that the sign of the immediate market response is the same as that of the predictability at intermediate time horizons. This is consistent with underreaction to cash flow news or with investor sentiment being related to mispricing. It is inconsistent with the alternative explanations of a rational response to cash flow news or sentiment indicators providing information about future expected returns.     

Earnings Announcement Lags and Market Responses—Does the Tone of the News and the Market Sentiment Matter?

We investigate earnings announcement lags (period from the end of the reporting period until the announcement date) for the good and the bad quarterly earnings news across different market sentiment periods as well as market reactions thereto. Companies listed on Baltic stock exchanges exhibit clear signs of strategic timing of earnings announcements. Earnings announcement lags for the bad news tend to be longer than those for the good news. This difference is more pronounced during low market sentiment periods. If the release of the bad news is postponed, abnormal return responses remain lower, as expected.     

新闻驱动的量化投资

本文讨论了在香港股市中利用新闻软信息进行量化处理并进行统计套利的量化投资策略,提出了测量新闻消息作者情绪的统计学指数,以及测量新闻消息与证券的相关的统计学指数,以及新闻消息对相关证券影响方向（正、负面或者中性）的指数。本文证明在香港股票市场上存在着利用这些指数进行统计套利的机会。     

COVID-19 Sentiment and the Chinese Stock Market: Evidence from the Official News Media and Sina Weibo

This study quantitatively measures the Chinese stock market’s reaction to sentiments regarding the Novel Coronavirus 2019 (COVID-19). Using 6.3 million items of textual data extracted from the official news media and Sina Weibo blogsite, we develop two COVID-19 sentiment indices that capture the moods related to COVID-19. Our sentiment indices are real-time and forward-looking indices in the stock market. We discover that stock returns and turnover rates were positively predicted by the COVID-19 sentiments during the period from December 17, 2019 to March 13, 2020. Consistent with this prediction, margin trading and short selling activities intensified proactively with growth sentiment. Overall, these results illustrate how the effects of the pandemic crisis were amplified by the sentiments.     

News-based ESG sentiment and stock price crash risk

From the perspective of ESG news-based sentiment, we examine the impact of ESG performance on stock price crash risk. This paper constructs a sentiment index based on ESG news to measure public opinion of listed firms. First, there is a significant negative relationship between ESG news sentiment and stock price crash risk, indicating that higher ESG news sentiment can reduce the crash risk. Second, heterogeneity analysis demonstrates that ESG sentiment has a greater impact on crash risk reduction for firms with lower analyst coverage, lower information transparency, voluntary ESG information disclosure and non-state-owned. In addition, mechanism tests indicate that ESG sentiment affects stock price crash risk by reducing negative ESG incidents, information asymmetry, and agency costs. This paper examines the research inference that ESG news sentiment is beneficial in reducing stock price crash risk and expands the research on the governance mechanism of stock price crash risk.     

Market sentiment to COVID-19 and the Chinese stock market

We classify the market sentiment to COVID-19 into expected and unexpected components and then examine their particular impacts on the stock market. We find that unexpected sentiment causes fluctuations in the stock market more than expected sentiment does. However, unexpected sentiment cannot affect stock market informativeness despite the remarkable informational effect of expected sentiment. Moreover, the relation between expected sentiment and stock market fluctuation or informativeness is one-way, whereas there exists a two-way interaction between unexpected sentiment and stock market fluctuation. This further confirms that expected sentiment is informational, whereas unexpected sentiment is quite noisy and informationally harmful.     

Returns and volatilities of energy futures markets: Roles of speculative and hedging sentiments

This study examines how speculative and hedging sentiments influence the returns and volatilities of energy futures markets. We construct speculative and hedging sentiment indices based on the weekly data of fund and commercial positions of four energy futures: crude oil, heating oil, gasoline, and natural gas, traded on the New York Mercantile Exchange (NYMEX) from 15 January 2013 to 5 February 2019. Our study demonstrates that speculative sentiment generates greater market fluctuations in the energy futures markets than hedging sentiment; and, further, speculative sentiment stimulates a reversal effect on the returns of crude oil futures. Moreover, speculative sentiment exerts positive systemic risk compensation on the four futures' returns, whereas hedging sentiment alleviates volatilities in the energy futures markets. Most notably, distinguishing it from the leverage effect in stock markets, the speculative sentiment in the energy futures markets is influenced more by good than by bad news; while hedging sentiment exhibits emotional neutrality, as opposed to its impact on stock markets as reported in the literature. Additionally, the positive hedging sentiment in crude oil futures demonstrates significant systemic risk compensation, whereas the three other futures do not have an influence, confirming the prevalence of speculation in hedging transactions in crude oil futures. Our further analysis shows cross-market volatility spillover effects, among which speculative sentiment inherent in crude oil futures causes volatility spillovers to the three other futures, while hedging sentiment has no such effect. Our study has implications for overseeing international energy futures markets, providing regulators with evidence that will facilitate the development of effective strategies to strengthen market supervision.     

Asymmetric response to earnings news across different sentiment states: The role of cognitive dissonance

Using the Chinese stock market data, we test the hypothesis that cognitive dissonance influences the stock market response to earnings news. Supporting this notion, we find that investors disregard earnings news that contradicts their sentiment due to cognitive dissonance, thereby causing a muted announcement date price reaction to such news. Further analysis shows that higher retail concentration and greater valuation uncertainty of the underlying firm exacerbate this cognitive dissonance and hence amplify its impact, but less credible financial report does not. Finally, we find that cognitive dissonance is temporary for bad news under optimism, but is quite persistent for good news under pessimism. Overall, our findings offer a behavioral bias explanation to understand why investors underuse accounting information.     

Institutional investor sentiment and aggregate stock returns

This paper examines the equity market return predictability of institutional investor sentiment, in comparison to individual investor sentiment. Our findings suggest that institutional traders are informed and that their sentiment helps to tilt stock prices towards the intrinsic value. This is because the sentiment of institutions encompasses news regarding expectations on future cash flows of underlying firms that impounds itself into future price expectations. In this study, we add to the large number of studies that investigate the role and implications of investor sentiment, which has long been viewed as a pure behavioural phenomenon, on market efficiency and price discovery.     

The power of bad: The negativity bias in Australian consumer sentiment announcements on stock returns

This paper examines the equity market reaction to the monthly release of Australian consumer sentiment news. Our results indicate that consumer sentiment has valuable information content. Further, we document a version of the “negativity effect” (from the psychology literature) in which, upon announcement of bad (good) sentiment news, the equity market experiences a significant negative (no) announcement day effect. Notably, we find that the market recovers from the bad news shock relatively quickly post-announcement. The results are robust to a broad range of additional tests.     

Investor sentiment and return predictability of disagreement

This study examines the influence of investor sentiment on the relationship between disagreement among investors and future stock market returns. We find that the relationship between disagreement and future stock market returns time-varies with the degree of investor sentiment. Higher disagreement among investors’ opinions predicts significantly lower future stock market returns during high-sentiment periods, but it has no significant effect on future stock market returns during low-sentiment periods. Our findings imply that investor sentiment is related to several causes of short-sale impediments suggested in the previous literature on investor sentiment, and that the stock return predictability of disagreement is driven by investor sentiment. We demonstrate that investor sentiment has a significant impact on the stock market return predictability of disagreement through in-sample and out-of-sample analyses. In addition, the profitability of our suggested trading strategy exploiting disagreement and investor sentiment level confirms the economic significance of incorporating investor sentiment into the relationship between disagreement among investors and future stock market returns.     

Do sentiment trades explain investor overconfidence around analyst recommendation revisions?

This study examines irrational stock market reactions to analyst recommendation revisions depending on investor sentiment levels prior to analyst report announcements. We construct a firm-specific sentiment indicator by extending Huang et al. (2015, Review of Financial Studies, 28, pp.791–837). Analyst recommendation revisions have more pronounced effects for downgrades, which is attributable to sentiment effects. Domestic investors tend to react less to upgrades (downgrades) news when their prior beliefs are pessimistic (optimistic), implying that they are overconfident. The domestic investors drive sentiment trades, whereas foreign investors are not biased.     

Which sentiment index is more informative to forecast stock market volatility? Evidence from China

In this paper, we investigate the predictive ability of three sentiment indices constructed by social media, newspaper, and Internet media news to forecast the realized volatility (RV) of SSEC from in- and out-of-sample perspectives. Our research is based on the heterogeneous autoregressive (HAR) framework. There are several notable findings. First, the in-sample estimation results suggest that the daily social media and Internet media news sentiment indices have significant impact for stock market volatility, while the sentiment index built by traditional newspaper have no impact. Second, the one-day-ahead out-of-sample forecasting results indicate that the two sentiment indices constructed by social media and Internet media news can considerably improve forecast accuracy. In addition, the model incorporating the positive and negative social media sentiment indices exhibits more superior forecasting performance. Third, we find only the sentiment index built by Internet media news can improve the mid- and long-run volatility predictive accuracy. Fourth, the empirical results based on alternative prediction periods and alternative volatility estimator confirm our conclusions are robust. Finally, we examine the predictability of the monthly sentiment indices and find that the two sentiment indices of social media and Internet media news contain more informative to forecast the monthly RV of SSEC, CSI800, and SZCI, however invalid for CSI300.     

The holiday and Yom Kippur War sentiment effects: the Tel Aviv Stock Exchange (TASE)

Several empirical studies reveal that holidays generally create positive sentiment in the stock market, whereas negative events, such as wars or disasters, are accompanied by negative sentiment. However, what happens if a negative event occurs on a holiday? In such a case, we expect two conflicting sentiment effects, which may cancel one another out or, alternatively, one effect may dominate the other. The stock market in Israel provides a unique laboratory in which to test these two conflicting effects, as Israel faced a horrible war on the Yom Kippur holiday in 1973—a war whose influence is still strongly felt today. Indeed, we find two robust effects: A strong and significant positive holiday sentiment effect; and a negative war sentiment effect, which dominates the positive holiday effect. These results, which show how sentiment effects are created, are general and can easily be applied to other events and other markets when conflicting sentiment effects occur.