Daily market news sentiment and stock prices

David E. Allen, Michael McAleer, Abhay K. Singh

Research output: Contribution to journalArticleResearchpeer-review

Abstract

In recent years there has been a tremendous growth in readily available news related to traded assets in international financial markets. This financial news is now available through real-time online sources such as Internet news and social media sources. The increase in the availability of financial news and investor’s ease of access to it has a potentially significant impact on market stock price movement as these news items are swiftly transformed into investors sentiment which in turn drives prices. In this study, we use the Thomson Reuters News Analytics (TRNA) data set to construct a series of daily sentiment scores for Dow Jones Industrial Average (DJIA) stock index constituents. We use these daily DJIA market sentiment scores to study the influence of financial news sentiment scores on the stock returns of these constituents using a multi-factor model. We augment the Fama–French three-factor model with the day’s sentiment score along with lagged scores to evaluate the additional effects of financial news sentiment on stock prices in the context of this model using Ordinary Least Square (OLS) and Quantile Regression (QR) to analyse the effect around the tail of the return distribution. We also conduct the analysis using the seven-day simple moving average (SMA) of the scores to account for news released on non-trading days. Our results suggest that even when market factors are taken into account, sentiment scores have a significant effect on Dow Jones constituent returns and that lagged daily sentiment scores are often significant, suggesting that information compounded in these scores is not immediately reflected in security prices and related return series. The results also indicate that the SMA measure does not have a significant effect on the returns. The analysis using Quantile Regression provides evidence that the news has more impact on left tail compared to the right tail of the returns.
LanguageEnglish
Pages3212-3235
Number of pages24
JournalApplied Economics
Volume51
Issue number30
Early online date14 Feb 2019
DOIs
Publication statusPublished - 27 Jun 2019

Fingerprint

Sentiment
News
Stock prices
Quantile regression
Moving average
World Wide Web
International financial markets
Multifactor model
Market sentiment
Stock returns
Ordinary least squares
Fama-French three-factor model
Security price
Investor sentiment
Stock index
Investors
Market factors
Social media
Return distribution
Assets

Keywords

  • Sentiment analysis
  • asset pricing
  • factor models
  • financial news

Cite this

Allen, David E. ; McAleer, Michael ; Singh, Abhay K. / Daily market news sentiment and stock prices. In: Applied Economics. 2019 ; Vol. 51, No. 30. pp. 3212-3235.
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Daily market news sentiment and stock prices. / Allen, David E.; McAleer, Michael; Singh, Abhay K.

In: Applied Economics, Vol. 51, No. 30, 27.06.2019, p. 3212-3235.

Research output: Contribution to journalArticleResearchpeer-review

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