Risk Premium of Social Media Sentiment

Abstract

This research investigates the predictive capability of sentiment extrapolated from three dictionaries; financial, social media and mood states. Our findings show 1) through the Fama-Macbeth regression method, social media based sentiment measures can be used as risk factors in an asset pricing framework; 2) these sentiment measures have predictive capability when used as features in a machine learning framework, and 3) adjusting returns for market effects result in positive alpha.

Keywords: sentiment analysis, risk management, forecasting

JEL Classification: C01, C32, G02, G12