A Textual Analysis Algorithm for the Equity Market: The European Case

The Journal of Investing, 25 (3) 105-116; DOI: doi/10.3905/joi.2016.25.3.105, 2016

20 Pages Posted: 7 Feb 2019

See all articles by Germán G. Creamer

Germán G. Creamer

Stevens Institute of Technology, School of Business; Columbia University - Department of Computer Science

Yong Ren

Stevens Institute of Technology - School of Business

Yasuaki Sakamoto

AXA Direct Japan

Jeffrey V. Nickerson

Stevens Institute of Technology - School of Business

Date Written: 2016

Abstract

The general topic of the paper is the use of the crowd to interpret text, and the power of that interpretation to predict future events. This topic is addressed through an experiment, in which news sentiment is evaluated by crowds and experts in different configurations. Their classifications are used as training sets for machine learning algorithms. The testing is done based on Reuters news stories and the returns of the stocks mentioned right after the stories appear.

This paper explores a simple trading strategy where the trader takes a long position when the forecast of the assets return is positive, and liquidate the position after 1 minute. Using this trading strategy, support vector machine, trained with the sentiment of several human groups, shows the highest Sharpe ratio after transaction costs and outperforms the STOXX 50 index.

Keywords: Computational finance, text analysis, crowdsourcing, cognitive modeling, machine learning

JEL Classification: C53, C63, C92, G12, G14, F30

Suggested Citation

Creamer, Germán G. and Ren, Yong and Sakamoto, Yasuaki and Nickerson, Jeffrey V., A Textual Analysis Algorithm for the Equity Market: The European Case (2016). The Journal of Investing, 25 (3) 105-116; DOI: doi/10.3905/joi.2016.25.3.105, 2016. Available at SSRN: https://ssrn.com/abstract=3322192

Germán G. Creamer (Contact Author)

Stevens Institute of Technology, School of Business ( email )

1 Castle Point on Hudson
Hoboken, NJ 07030
United States
2012168986 (Phone)

HOME PAGE: http://www.creamer-co.com

Columbia University - Department of Computer Science ( email )

New York, NY 10027
United States

Yong Ren

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Yasuaki Sakamoto

AXA Direct Japan ( email )

Japan

Jeffrey V. Nickerson

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

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