Journal of Behavioral Finance, 15(3), 2014, pp. 195-213.
40 Pages Posted: 16 Nov 2011 Last revised: 25 Jan 2016
Date Written: November 15, 2011
We analyze whether newspaper content can predict aggregate future stock returns. Our study is based on articles published in the Handelsblatt, a leading German financial newspaper, from July 1989 to March 2011. We summarize newspaper content in a systematic way by constructing word-count indices for a large number of words. Word-count indices are instantly available and therefore potentially valuable financial indicators. Our main finding is that the predictive power of newspaper content has increased over time, particularly since 2000. We find that a cluster analysis approach increases the predictive power of newspaper articles substantially. To obtain optimal predictive power, we need at least seven clusters. Our analysis shows that newspaper content is a valuable predictor of future DAX returns in and out of sample.
Keywords: Wordcount, Text Mining, Market Efficiency, Tactical Asset Allocation
JEL Classification: G10
Suggested Citation: Suggested Citation
Ammann, Manuel and Frey, Roman and Verhofen, Michael, Do Newspaper Articles Predict Aggregate Stock Returns? (November 15, 2011). University of St.Gallen, School of Finance Research Paper No. 2012/4. Available at SSRN: https://ssrn.com/abstract=1959916 or http://dx.doi.org/10.2139/ssrn.1959916
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