Trade Sentiment and the Stock Market: New Evidence Based on Big Data Textual Analysis of Chinese Media

47 Pages Posted: 12 Feb 2021

See all articles by Marlene Amstad

Marlene Amstad

Harvard Kennedy School; The Chinese University of Hong Kong, Shenzhen

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Chao He

Wisers Information Limited

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: January 1, 2021

Abstract

Trade tensions between China and US have played an important role in swinging global stock markets but effects are difficult to quantify. We develop a novel trade sentiment index (TSI) based on textual analysis and machine learning applied on a big data pool that assesses the positive or negative tone of the Chinese media coverage, and evaluates its capacity to explain the behaviour of 60 global equity markets. We find the TSI to contribute around 10% of model capacity to explain the stock price variability from January 2018 to June 2019 in countries that are more exposed to the China-US value chain. Most of the contribution is given by the tone extracted from social media (9%), while that obtained from traditional media explains only a modest part of stock price variability (1%). No equity market benefits from the China-US trade war, and Asian markets tend to be more negatively affected. In particular, we find that sectors most affected by tariffs such as information technology related ones are particularly sensitive to the tone in trade tension.

JEL Classification: C45, C55, D80, F13, F14, G15

Suggested Citation

Amstad, Marlene and Gambacorta, Leonardo and He, Chao and Xia, Fan Dora, Trade Sentiment and the Stock Market: New Evidence Based on Big Data Textual Analysis of Chinese Media (January 1, 2021). CEPR Discussion Paper No. DP15682, Available at SSRN: https://ssrn.com/abstract=3783897

Marlene Amstad (Contact Author)

Harvard Kennedy School ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

The Chinese University of Hong Kong, Shenzhen ( email )

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Chao He

Wisers Information Limited ( email )

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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