Language Sentiment in Fundamental and Noise Trading: Evidence from Crude Oil

38 Pages Posted: 28 Apr 2020

See all articles by Simon Alfano

Simon Alfano

University of Freiburg - Information Systems Research

Stefan Feuerriegel

ETH Zürich

Dirk Neumann

University of Freiburg

Date Written: April 5, 2020

Abstract

Recent research has found the language sentiment in financial news to be a substantial driver of prices in financial markets, though there are two diametrically opposed interpretations for this: either markets perceive news sentiment as fundamental information (thus leading to changes in the valuation of assets) or news sentiment conveys a noise signal (thus contributing to the stochastic component of prices). The opposite roles are resolved in the context of crude oil prices by decomposing price movements into two components referring to fundamental and noise trading. Contrary to theoretical arguments in prior literature, we find empirical results supporting both interpretations.

Keywords: Kalman filter, State-space model, News sentiment, Noise trader theory, Crude oil

JEL Classification: C51, D84, G02, G14

Suggested Citation

Alfano, Simon and Feuerriegel, Stefan and Neumann, Dirk, Language Sentiment in Fundamental and Noise Trading: Evidence from Crude Oil (April 5, 2020). Available at SSRN: https://ssrn.com/abstract=3569102 or http://dx.doi.org/10.2139/ssrn.3569102

Simon Alfano (Contact Author)

University of Freiburg - Information Systems Research ( email )

Kollegiengebäude II
Platz der Alten Synagoge
Freiburg, 79098
Germany

HOME PAGE: http://https://www.is.uni-freiburg.de

Stefan Feuerriegel

ETH Zürich ( email )

Weinbergstr. 56/58
Zürich, 8092
Switzerland

HOME PAGE: http://www.mis.ethz.ch/

Dirk Neumann

University of Freiburg ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
Kollegiengebäude II, Platz der Alten Synagoge
Freiburg im Breisgau, 79098
Germany

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