Driven by News Tone? Understanding Information Processing When Covariates are Unknown: The Case of Natural Gas Price Movements

11 Pages Posted: 29 Jun 2015

See all articles by Simon Alfano

Simon Alfano

University of Freiburg - Information Systems Research

Max Rapp

Albert-Ludwigs-Universität Freiburg

Nicolas Pröllochs

University of Freiburg - Information Systems Research

Stefan Feuerriegel

ETH Zurich

Dirk Neumann

University of Freiburg

Date Written: June 27, 2015

Abstract

Digitization promotes the instant dissemination of news in financial markets. These news represent unprecedented amounts of unstructured data. This paper applies Big Data analytics to financial news related to the natural gas market. To date, we find evidence on 16 different variables as drivers of the natural gas price. However, these fundamental drivers cannot explain a significant share of natural gas price volatility. Thus, we first apply a LASSO shrinkage method to identify the most significant control variables. Our feature-selection LASSO method suggests 4 out of the 16 drivers as relevant. Second, we investigate the effect of news sentiment on the Henry Hub gas price as a potential driver of volatility. We include the 4 most relevant control variables as of the LASSO method into our regression model. Our findings suggest a significant positive effect of news sentiment on the natural gas price.

Keywords: Information processing, human information processing, natural language processing, behavioral science, text mining, IS research

JEL Classification: Q30, Q31, C50, C51

Suggested Citation

Alfano, Simon and Rapp, Max and Pröllochs, Nicolas and Feuerriegel, Stefan and Neumann, Dirk, Driven by News Tone? Understanding Information Processing When Covariates are Unknown: The Case of Natural Gas Price Movements (June 27, 2015). Available at SSRN: https://ssrn.com/abstract=2624106 or http://dx.doi.org/10.2139/ssrn.2624106

Simon Alfano (Contact Author)

University of Freiburg - Information Systems Research ( email )

Kollegiengebäude II
Platz der Alten Synagoge
Freiburg, 79098
Germany

HOME PAGE: http://https://www.is.uni-freiburg.de

Max Rapp

Albert-Ludwigs-Universität Freiburg ( email )

Kollegiengebäude II
Platz der Alten Synagoge
Freiburg, 79098
Germany

Nicolas Pröllochs

University of Freiburg - Information Systems Research ( email )

Kollegiengebäude II
Platz der Alten Synagoge
Freiburg, 79098
Germany

Stefan Feuerriegel

ETH Zurich ( email )

Weinbergstr. 56/58
Zürich, 8092
Switzerland

HOME PAGE: http://www.mis.ethz.ch/

Dirk Neumann

University of Freiburg ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
Kollegiengebäude II, Platz der Alten Synagoge
Freiburg im Breisgau, 79098
Germany

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