Information, attention, sentiment, and buzz in the financial markets

Abstract

This paper aims at focusing on the avenues of research related to the process of information integration by taking explicitly into account investors' sentiment, investors' attention, and the buzz hypothesis. New social media introduce change in the way information is processes in the market. Qualitative concepts such as rumor, opinion, sentiment, are often put in the frontstage. Moreover the formal dimensions of information become more important compared to the content of information. This leads to new avenues of research aside the standard information value hypothesis. disclose relevant information. Analysts are the best example. They produce highly synthetic information that is standardized and understandable to investors such as earnings forecasts and recommendations. The process of integration of these pieces of information is not so simple. Even if the content of the information is valuable it may be polluted by conflicts of interest. So the analysts system introduces by itself some additional uncertainty and/or some noise (Michaely and Womack, 1999;Dubois and Dumontier, 2006). Strategic communication policies and hiring investor relation firms will also bias information delivery (Bushee and Miller, 2012). This will increase communication press coverage and disclosure activity; it develops dissemination to investors…At the end, it will reduce the bid-ask spread (Bushee et al., 2010). But will it reduce information asymmetry? If disclosure is pure noise, the answer should be negative. If disclosure is private information, the answer should be positive. However , if the communication strategy repeats constantly the same (positive) new, it is more complex as the initial delivery of private information is no more private after that and becomes a quantitative communication strategy that aims at creating a buzz, i.e. at dragging overall attention to the firm's name. Dissemination tools are very various: commercial wire services (such as Dow Jones Reuters, Bloomberg), analyst' meetings, issue/revision of forecasts, public media coverage, conference calls, and social media. The specificity of social mediaThe Internet introduces new relationship with regard to information. Online generates massive datasets. Social media are Internet-based services where the content of information is freely created by the participants. Everybody can raise his voice, and give information, opinion and express postures. One important characteristic is immediacy of information. Avoiding the channel of traditional media and overpassing the intermediary role of journalists and editors, will result in communication and messages that are not filtered by ethical considerations, trustfulness and accuracy constraints. The two major players in the social media industry are Twitter and Facebook. The content of information provided on large scale by social media may influence the setting of price in financial markets as well as traditional media and financial news services. McLuhan (1964) recalled that the medium is not a passive technology but cre...

Application of Google Trends‐based sentiment index in exchange rate prediction

“…More recently, Da, Engelberg, and Gao (2014) create a FEARS (Financial and Economic Attitudes Revealed by Search) index with economy-related search frequencies as a proxy of investor sentiment and use it to explain stock price movements and various other assets in the United States. Although the concepts of attention and sentiment are close and overlap partially (de La Bruslerieh, 2017), sentiment has a broader coverage than attention. Although investors' attention is their scarce cognitive resource of the awareness of available information, sentiment may not be related to such information, as it includes investors' moods or individual opinions that may not be backed by news or information delivered by the media.…”