Music Sentiment and Stock Returns Around the World

43 Pages Posted: 18 Feb 2021 Last revised: 14 Aug 2021

See all articles by Alex Edmans

Alex Edmans

London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Adrian Fernandez-Perez

Auckland University of Technology

Alexandre Garel

Audencia Business School

Ivan Indriawan

University of Adelaide

Multiple version iconThere are 2 versions of this paper

Date Written: August 14, 2021

Abstract

This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors, weather conditions, and COVID-related restrictions. We find that music sentiment is positively correlated with same-week equity market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when trading restrictions limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility. It is negatively associated with government bond returns, consistent with a flight to safety.

Keywords: Investor Sentiment, Investor Mood, Behavioral Finance

JEL Classification: G12, G14

Suggested Citation

Edmans, Alex and Fernandez-Perez, Adrian and Garel, Alexandre and Indriawan, Ivan, Music Sentiment and Stock Returns Around the World (August 14, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3776071 or http://dx.doi.org/10.2139/ssrn.3776071

Alex Edmans (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Adrian Fernandez-Perez

Auckland University of Technology ( email )

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Alexandre Garel

Audencia Business School ( email )

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Ivan Indriawan

University of Adelaide ( email )

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Adelaide, South Australia 5005
Australia

HOME PAGE: http://https://sites.google.com/site/ivanindriawan/home

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