Buzzwords Build Momentum: Global Financial Twitter Sentiment and the Aggregate Stock Market

Preprint. Cite as: Buzzwords build momentum: Global financial Twitter sentiment and the aggregate stock market, Expert Systems with Applications, Volume 136, 2019, Pages 171-186, ISSN 0957-4174, DOI:10.1016/j.eswa.2019.06.027.

48 Pages Posted: 2 Jul 2019 Last revised: 5 Jul 2019

See all articles by Axel Groß-Klußmann

Axel Groß-Klußmann

Quoniam Asset Management GmbH

Stephan König

Hannover University of Applied Sciences and Arts

Markus Ebner

Quoniam Asset Management

Date Written: February 28, 2019

Abstract

We examine the long-term relationship between signals derived from nine years of unstructured social media microblog text data and financial market developments in five major economic regions. Employing statistical language modeling techniques we construct directional sentiment metrics and link these to aggregate stock index returns. To address the noise in finance-related Twitter messages we identify expert users whose tweets predominantly focus on finance topics. We document that expert users are the main drivers behind a significant contemporaneous link between Twitter sentiment and financial markets. Notably, the link remains equally strong in times of major news events impacting the markets. The direct prediction value of expert sentiment metrics for stock index returns, however, is found to be elusive and short-lived. Yet, the relation between expert sentiment metrics and stock indices is sufficient to devise profitable cross-sectional as well as time series momentum investment strategies based on Twitter signals that survive basic transaction cost assumptions. In this context, our results show that expert sentiment signals can yield higher risk-adjusted returns than classical price-signals.

Keywords: Text Mining in Finance, Social Media Data, Sentiment Extraction, Trend-Following, Alternative Data

JEL Classification: G11, G14, C32, C38

Suggested Citation

Groß-Klußmann, Axel and König, Stephan and Ebner, Markus, Buzzwords Build Momentum: Global Financial Twitter Sentiment and the Aggregate Stock Market (February 28, 2019). Preprint. Cite as: Buzzwords build momentum: Global financial Twitter sentiment and the aggregate stock market, Expert Systems with Applications, Volume 136, 2019, Pages 171-186, ISSN 0957-4174, DOI:10.1016/j.eswa.2019.06.027.. Available at SSRN: https://ssrn.com/abstract=3412908 or http://dx.doi.org/10.2139/ssrn.3412908

Axel Groß-Klußmann (Contact Author)

Quoniam Asset Management GmbH ( email )

Frankfurt
Germany

Stephan König

Hannover University of Applied Sciences and Arts ( email )

Ricklinger Stadtweg 120
Hannover, 30459
Germany

Markus Ebner

Quoniam Asset Management ( email )

Westhafenplatz 1
Frankfurt am Main, 60327
Germany

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