Media Sentiment and International Asset Prices

47 Pages Posted: 11 Dec 2018 Last revised: 24 Mar 2020

See all articles by Samuel P. Fraiberger

Samuel P. Fraiberger

Computer Science; Harvard University - Institute for Quantitative Social Sciences; Northeastern University - Network Science Institute

Do Q Lee

International Monetary Fund (IMF) - Research Department

Damien Puy

International Monetary Fund (IMF)

Romain G. Rancière

University of Southern California

Date Written: March 2020

Abstract

We investigate the relationship between media sentiment and international equity prices using a new dataset of 4 million news articles published between 1991 and 2015. Three key results emerge. First, news sentiment robustly predicts (future) daily returns around the world. How- ever, we find a sharp contrast between the effect of local news and that of global news: whereas local news optimism (pessimism) predicts a small and transitory increase (decrease) in local equity returns, global news sentiment has a larger impact on returns that does not reverse in the short run. Second, news sentiment affects local prices mainly through the investment decisions of foreign â?? rather than local â?? investors. Third, large variations in global news sentiment predominantly happen in the absence of new information about fundamentals, suggesting that movements in global sentiment capture variations in investors sentiment. Taken together, our findings illustrate the key role played by foreign news and investors sentiment in driving local asset prices.

Keywords: Asset Pricing, behavioral finance, Capital Flows, Investor Sentiment, Natural Language Processing, news media

JEL Classification: F3, F32, G12, G15

Suggested Citation

Fraiberger, Samuel P. and Lee, Do Q and Puy, Damien and Rancière, Romain G., Media Sentiment and International Asset Prices (March 2020). CEPR Discussion Paper No. DP13366, Available at SSRN: https://ssrn.com/abstract=3298774

Samuel P. Fraiberger (Contact Author)

Computer Science ( email )

60 5th Avenue
New York, NY 10012
United States

Harvard University - Institute for Quantitative Social Sciences ( email )

1737 Cambridge St
Cambridge, MA 02115
United States

Northeastern University - Network Science Institute ( email )

177 Huntington Avenue
Boston, MA 02115
United States

Do Q Lee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Damien Puy

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Romain G. Rancière

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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