Divergence of Sentiment and Stock Market Trading

43 Pages Posted: 5 Jul 2014 Last revised: 11 Feb 2017

See all articles by Antonios Siganos

Antonios Siganos

University of Glasgow

Evangelos Vagenas-Nanos

University of Glasgow

Patrick Verwijmeren

Erasmus University Rotterdam (EUR)

Date Written: February 10, 2017

Abstract

This paper introduces the concept of divergence of sentiment to the behavioral finance literature. We measure the distance between people with positive and negative sentiment on a daily basis for 20 countries by using data from status updates on Facebook. The prediction is that a higher divergence of sentiment leads to more diverging views on prospects and risks, and thus to more diverging views on the value of a stock. In line with this prediction, divergence of sentiment is positively related to trading volume. We further predict and find a positive relation between divergence of sentiment and stock price volatility. The observed relations are stronger when individual investors are more likely to trade. We compare the effect of our country-specific measures to a global measure of divergence of sentiment. We find that the separate effects of country-specific and global divergence measures depend on a country’s level of market integration.

Keywords: Sentiment, Disagreement Models, Divergence of Opinion, Small Investors, Market Integration, Facebook’s Gross National Happiness Index

JEL Classification: G14, G15

Suggested Citation

Siganos, Antonios and Vagenas-Nanos, Evangelos and Verwijmeren, Patrick, Divergence of Sentiment and Stock Market Trading (February 10, 2017). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2462140 or http://dx.doi.org/10.2139/ssrn.2462140

Antonios Siganos

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Evangelos Vagenas-Nanos

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Patrick Verwijmeren (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
248
Abstract Views
2,680
Rank
186,265
PlumX Metrics