Does Perception Matter in Asset Pricing? Modeling Volatility Jumps and Returns Using Twitter-Based Sentiment Indices

Journal of Behavioral Finance https://doi.org/10.1080/15427560.2020.1866573

42 Pages Posted: 29 May 2018 Last revised: 7 Jan 2021

Date Written: April 18, 2019

Abstract

In this paper, I argue that we can use consumer and investor perceptions to forecast short-term fluctuations in asset prices. Using tweets scraped from Twitter between 2009 and 2019, I perform textual analysis to construct daily sentiment indices. While other scholars have relied on third-party companies to complete this task, doing so limits our potential understanding of sentiments' effects on asset pricing. The sentiment indices I constructed are numerical, not dichotomous, scores, which allows to control for sentiment strength. Results indicate that sentiments can forecast daily stock returns and volatility jumps.

Keywords: Behavioral Finance, Volatility Jumps, Twitter, Social Media, Stock Returns

JEL Classification: G40, G41, G14, G17

Suggested Citation

Sanford, Anthony, Does Perception Matter in Asset Pricing? Modeling Volatility Jumps and Returns Using Twitter-Based Sentiment Indices (April 18, 2019). Journal of Behavioral Finance https://doi.org/10.1080/15427560.2020.1866573, Available at SSRN: https://ssrn.com/abstract=3180950 or http://dx.doi.org/10.2139/ssrn.3180950

Anthony Sanford (Contact Author)

University of Maryland ( email )

4113AA Van Munching Hall
College Park, MD 20742
United States

HOME PAGE: http://www.terpconnect.umd.edu/~sanfoan/

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