Abstract
We examined whether press reports on the collective mood of investors can predict changes in stock prices. We collected data on the use of emotion words in newspaper reports on traders' affect, coded these emotion words according to their location on an affective circumplex in terms of pleasantness and activation level, and created indices of collective mood for each trading day. Then, by using time series analyses, we examined whether these mood indices, depicting investors' emotion on a given trading day, could predict the next day's opening price of the stock market. The strongest findings showed that activated pleasant mood predicted increases in NASDAQ prices, while activated unpleasant mood predicted decreases in NASDAQ prices. We conclude that both valence and activation levels of collective mood are important in predicting trend continuation in stock prices.
Highlights
News reports about the stock market commonly refer to more than changes in the economy or the announcement of corporate earnings
They often describe the ‘‘mood’’ of the market or stock traders in emotional terms such as ‘‘anxious,’’ ‘‘depressed,’’ ‘‘calm’’ or ‘‘enthusiastic.’’ These affective descriptors go beyond the dueling forces of ‘‘fear’’ and ‘‘greed’’ that have long been used by pundits and stock analysts to depict market psychology (e.g., [1,2])
In this study we will examine the relationship of reported collective mood to stock market behavior, and whether such reports of affective states can predict market movements
Summary
News reports about the stock market commonly refer to more than changes in the economy or the announcement of corporate earnings They often describe the ‘‘mood’’ of the market or stock traders in emotional terms such as ‘‘anxious,’’ ‘‘depressed,’’ ‘‘calm’’ or ‘‘enthusiastic.’’ These affective descriptors go beyond the dueling forces of ‘‘fear’’ and ‘‘greed’’ that have long been used by pundits and stock analysts to depict market psychology (e.g., [1,2]). Of primary focus will be the question of whether traders’ collective mood, as reported in newspapers, can predict future increases or decreases in stock prices Affective states such as mood and emotion are no longer considered to be solely an individual-level experience, and a group (e.g., [4,5]) and collective experience [6,7]. There are objective indicators of sentiment such as the ratio of put to call options and measures of market volatility, such as the Chicago Board Options Exchange Market Volatility Index (or VIX), commonly called the ‘‘fear index.’’
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
