The Aggregate News Confidence Index by Linguistic Analysis

42 Pages Posted: 18 Feb 2013

See all articles by Ralph Lu

Ralph Lu

Ming Chuan University - Department of Finance

Yu-Chen Wei

National Kaohsiung University of Science and Technology

Yen-Ju Hsu

Fu Jen Catholic University - College of Management

Date Written: February 17, 2013

Abstract

We construct a market aggregate news confidence index (ANCI) by collecting the huge Chinese financial news related to each stock listed on the Taiwan Stock Exchange. ANCI is constructed by using linguistic analysis which could also be a sentiment proxy for the decision reference. The empirical results show that daily ANCI could be a leading index to the trading volume, trading value, turnover and volatility index in the Taiwan stock market. On the other hand, weekly and monthly ANCI could be a leading index to the market returns. We find that trading volume, trading value, turnover ratio and volatility index will increase when the previous daily or weekly ANCI is positive. On the other hand, the investors’ fear gauge of the volatility index decreases when the lagged term of ANCI increases. The application of portfolio management confirms that investors could buy selected portfolios with lower turnover, smaller size or lower stock price to book value while the higher confident scenarios is distinguished. This study contributes to previous studies that the degree of confidence reflected by the qualitative news reports should be incorporated in the field of the sentiment proxy for decision making.

Keywords: Confidence Index, News, Linguistic Analysis, Taiwan Stock Exchange, Portfolio Management

JEL Classification: D82, G12, G14

Suggested Citation

Lu, Ralph Yang-Cheng and Wei, Yu-Chen and Hsu, Yen-Ju, The Aggregate News Confidence Index by Linguistic Analysis (February 17, 2013). Available at SSRN: https://ssrn.com/abstract=2219910 or http://dx.doi.org/10.2139/ssrn.2219910

Ralph Yang-Cheng Lu

Ming Chuan University - Department of Finance ( email )

Taiwan

Yu-Chen Wei (Contact Author)

National Kaohsiung University of Science and Technology ( email )

No. 1, University Road
Yanchao District
Kaohsiung City, Taiwan 824
Taiwan

Yen-Ju Hsu

Fu Jen Catholic University - College of Management ( email )

Taiwan

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