Sensitivity to Sentiment: News vs Social Media

55 Pages Posted: 8 Mar 2020

See all articles by Baoqing Gan

Baoqing Gan

University of Technology Sydney

Vitali Alexeev

University of Technology Sydney

Ron Bird

University of Waikato - Management School

Danny Yeung

University of Technology Sydney (UTS); Financial Research Network (FIRN)

Date Written: September 13, 2019

Abstract

We explore the rapidly changing social and news media landscape that is responsible for the dissemination of information vital to the efficient functioning of the financial markets. Using the sheer volume of social and news media activity, commonly known as buzz, we document three distinct regimes. We find that between 2011 and 2013 the news media coverage stimulates activity in social media. This is followed by a transition period of two-way causality. From 2016, however, changes in levels of social media activity seem to lead and generate news coverage volumes. We uncover similar evolution of lead-lag pattern between sentiment measures constructed from the tonality contained in textual data from social and news media posts. We discover that market variables exert stronger impact on investor sentiment than the other way around. We also find that return responses to social media sentiment almost doubled after the transition period, while return responses to news-based sentiment almost halved to its pre-transition level. The linkage between volatility and sentiment is much more persistent than that between returns and sentiment. Overall, our results suggest that social media is becoming the dominant media source.

Keywords: Investor sentiment; Textual analysis; Vector autoregressive (VAR) model; Thomson Reuters MarketPsych Indices (TRMI)

JEL Classification: G14, G40, G41

Suggested Citation

Gan, Baoqing and Alexeev, Vitali and Bird, Ron and Yeung, Danny, Sensitivity to Sentiment: News vs Social Media (September 13, 2019). International Review of Financial Analysis, Vol. 67, No. 101390, 2020, Available at SSRN: https://ssrn.com/abstract=3536019

Baoqing Gan (Contact Author)

University of Technology Sydney ( email )

14-28 Ultimo Rd, UTS Business School,
Ultimo, NSW
Sydney, NSW 2007
Australia
2217 (Fax)

Vitali Alexeev

University of Technology Sydney ( email )

UTS Business School
PO Box 123, Broadway
Sydney, NSW
Australia

HOME PAGE: http://valexeev.yolasite.com

Ron Bird

University of Waikato - Management School

Hamilton
New Zealand

Danny Yeung

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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