Sentiment correlation in financial news networks and associated market movements

Abstract

In an increasingly connected global market, news sentiment towards one company may not only indicate its own market performance, but can also be associated with a broader movement on the sentiment and performance of other companies from the same or even different sectors. In this paper, we apply NLP techniques to understand news sentiment of 87 companies among the most reported on Reuters for a period of 7 years. We investigate the propagation of such sentiment in company networks and evaluate the associated market movements in terms of stock price and volatility. Our results suggest that, in certain sectors, strong media sentiment towards one company may indicate a significant change in media sentiment towards related companies measured as neighbours in a financial network constructed from news co-occurrence. Furthermore, there exists a weak but statistically significant association between strong media sentiment and abnormal market return as well as volatility. Such an association is more significant at the level of individual companies, but nevertheless remains visible at the level of sectors or groups of companies.

The financial crash of 2020 and the retail trader’s boon: a correlation between sentiment and technical analysis

“…A correlation between market sentiments and financial news was investigated by other researchers using data from October 2006 to November 2013 (Wan et al 2021 ). The results showed that the Technology space had highly positive sentiments and banks were negative due to the 2008 crash.…”

Risk Spillovers and Interconnectedness between Systemically Important Institutions

“…The news sentiment could indicate in advance the evolution of the market value of public companies. Indeed, Audrino et al (2020) find that sentiment variables are able to improve volatility forecasts significantly, whereas Wan et al (2021) demonstrate that there exists a weak but statistically significant association between strong media sentiment and abnormal market return as well as volatility.…”

“…In the same context, Cerchiello and Nicola (2018) use news archives from Reuters and Bloomberg and investigate causal effects in the diffusion of the news by means of Granger-causality tests and show that both the temporal dynamics and the spatial differentiation matter in the news contagion. Also, Wan et al (2021) investigate the propagation of news sentiment in company networks and evaluate the associated market movements in terms of stock price and volatility, arguing that strong media sentiment towards one company may be a sign of significant change in media sentiment towards related companies.…”

The Influence of Research Reports on Stock Returns: The Mediating Effect of Machine-Learning-Based Investor Sentiment

“…In fact, both EMH and modern behavioral finance believe that the volatility of the stock market comes from the release, dissemination, and utilization of information, although they hold different views on how information shapes stock movements [1]. With more and more evidence emerging that stock prices cannot incorporate new information instantly, it is now widely accepted that news reports, whether they contain new information or only capture stale information, have significant effects on stock returns and volatility, and can help predict stock movement [27][28][29][30]. Tetlock [31] found that media tone has an impact on stock returns.…”