Twitter Image Tone and FOMC Announcements

Abstract

We quantify the image and text tone of tweets around FOMC announcements and report evidence on the increasing use of visual content. We find that it is the tone of images in tweets, rather than the text, that is significantly associated with the implied FOMC risk premium and realized return in the equity and bond markets around FOMC announcements. One standard deviation increase in image tone corresponds to a six basis point decrease in the implied FOMC risk premium. These results are in line with the established importance of public sentiment expressed on Twitter; and with increasing visual media usage in the expression of opinions which feature unconventional elements such as emoticons, sarcasm, and slang. The impact of image tone is robust for financial market-related tweets, varying measures of risk premium, text tone, subsets of tweets, and different time intervals around FOMC announcements.

Keywords: Text analysis, Image analysis, Monetary policy, FOMC, Equity risk premium

JEL Classification: G12, G14