Sentiment During Recessions

41 Pages Posted: 16 Mar 2010 Last revised: 18 Sep 2012

See all articles by Diego Garcia

Diego Garcia

University of Colorado at Boulder - Leeds School of Business; University of North Carolina (UNC) at Chapel Hill - Finance Area

Date Written: June 15, 2012

Abstract

This paper studies the effect of sentiment on asset prices during the 20th century (1905 to 2005). As a proxy for sentiment, we use the fraction of positive and negative words in two columns of financial news from the New York Times. The main contribution of the paper is to show that, controlling for other well-known time-series patterns, the predictability of stock returns using news' content is concentrated in recessions. A one standard deviation shock to our news measure during recessions predicts a change in the conditional average return on the DJIA of twelve basis points over one day.

Keywords: media content, stock returns, sentiment, recessions

JEL Classification: G01, G14

Suggested Citation

Garcia, Diego, Sentiment During Recessions (June 15, 2012). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1571101 or http://dx.doi.org/10.2139/ssrn.1571101

Diego Garcia (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

University of North Carolina (UNC) at Chapel Hill - Finance Area

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

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