Automated Analysis of News to Compute Market Sentiment: Its Impact on Liquidity and Trading

48 Pages Posted: 17 May 2015  

Gautam Mitra

Brunel University London - CARISMA: The Centre for the Analysis of Risk and Optimisation Modelling Applications

Dan di Bartolomeo

Northfield Information Services

Ashok Banerjee

Indian Institute of Management Calcutta

Xiang Yu

OptiRisk Systems

Date Written: May 11, 2015

Abstract

Computer trading in financial markets is a rapidly developing field with a growing number of applications. Automated analysis of news and computation of market sentiment is a related applied research topic which impinges on the methods and models deployed in the former. In this chapter we have first explored the asset classes which are best suited for computer trading. We present in a summary form the essential aspects of market microstructure and the process of price formation as this takes place in trading. We critically analyse the role of different classes of traders and categorise alternative types of automated trading. We introduce alternative measures of liquidity which have been developed in the context of bid-ask of price quotation and explore its connection to market microstructure and trading. We review the technology and the prevalent methods for news sentiment analysis whereby qualitative textual news data is turned into market sentiment. The impact of news on liquidity and automated trading is critically examined. Finally we explore the interaction between manual and automated trading.

Keywords: Computer trading, Automated Trading, Market Sentiment, News Sentiment Analysis, News Impact, Liquidity measures, Market microstructure

Suggested Citation

Mitra, Gautam and di Bartolomeo, Dan and Banerjee, Ashok and Yu, Xiang, Automated Analysis of News to Compute Market Sentiment: Its Impact on Liquidity and Trading (May 11, 2015). Available at SSRN: https://ssrn.com/abstract=2605049

Gautam Mitra

Brunel University London - CARISMA: The Centre for the Analysis of Risk and Optimisation Modelling Applications ( email )

John Crank Building
Brunel University
Uxbridge, UB8 3PH
United Kingdom

Dan Di Bartolomeo

Northfield Information Services ( email )

77 N Washington St # 902
Boston, MA 02114
United States

Ashok Banerjee

Indian Institute of Management Calcutta ( email )

Diamond Harbour Road
Kolkata, West Bengal 700104
India

Xiang Yu (Contact Author)

OptiRisk Systems ( email )

UNICOM R&D House
One Oxford Road
Uxbridge, UB9 4DA
United Kingdom

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