Media Sentiment and International Asset Prices

34 Pages Posted: 14 Jan 2019

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 Ranciere

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2018

Abstract

We assess the impact of media sentiment on international equity prices using more than 4.5 million Reuters articles published across the globe between 1991 and 2015. News sentiment robustly predicts daily returns in both advanced and emerging markets, even after controlling for known determinants of stock prices. But not all news-sentiment is alike. A local (country-specific) increase in news optimism (pessimism) predicts a small and transitory increase (decrease) in local returns. By contrast, changes in global news sentiment have a larger impact on equity returns around the world, which does not reverse in the short run. We also find evidence that news sentiment affects mainly foreign - rather than local - investors: although local news optimism attracts international equity flows for a few days, global news optimism generates a permanent foreign equity inflow. Our results confirm the value of media content in capturing investor sentiment.

Keywords: International financial markets, Capital flows, Asset Pricing, Behavioral Finance, Investor Sentiment, News Media, Natural Language Processing

JEL Classification: F32, G12, G15

Suggested Citation

Fraiberger, Samuel P. and Lee, Do Q and Puy, Damien and Ranciere, Romain, Media Sentiment and International Asset Prices (December 2018). IMF Working Paper No. 18/274. Available at SSRN: https://ssrn.com/abstract=3314609

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 Ranciere

International Monetary Fund (IMF) ( email )

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

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