Music Sentiment and Stock Returns Around the World
38 Pages Posted: 18 Feb 2021
Date Written: January 31, 2021
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 and weather conditions. We find that music sentiment is positively correlated with same-week 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 short-sale constraints limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility.
Keywords: Investor Sentiment, Investor Mood, Behavioral Finance
JEL Classification: G12, G14
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