Predicting FTSE 100 Returns and Volatility Using Sentiment Analysis

22 Pages Posted: 23 Oct 2018

See all articles by Mark Johnman

Mark Johnman

Bond University

Bruce James Vanstone

Bond University

Adrian Gepp

Bond University - Bond Business School

Date Written: November 2018

Abstract

We investigate the statistical and economic effect of positive and negative sentiment on daily excess returns and volatility in the FTSE 100 index, using business news articles published by the Guardian Media Group between 01/01/2000 and 01/06/2016. The analysis indicates that while business news sentiment derived from articles aimed at retail traders does not influence excess returns in the FTSE 100 index, it does affect volatility, with negative sentiment increasing volatility and positive sentiment reducing it. Further, an ETF‐based trading strategy based on these findings is found to outperform the naïve buy‐and‐hold approach.

Keywords: Sentiment analysis, Trading strategy, Text mining, FTSE 100, News

Suggested Citation

Johnman, Mark and Vanstone, Bruce James and Gepp, Adrian, Predicting FTSE 100 Returns and Volatility Using Sentiment Analysis (November 2018). Accounting & Finance, Vol. 58, pp. 253-274, 2018, Available at SSRN: https://ssrn.com/abstract=3271217 or http://dx.doi.org/10.1111/acfi.12373

Mark Johnman (Contact Author)

Bond University ( email )

Gold Coast, QLD 4229
Australia

Bruce James Vanstone

Bond University ( email )

Gold Coast, QLD 4229
Australia

Adrian Gepp

Bond University - Bond Business School ( email )

Gold Coast
Australia

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