News and Investor Sentiment: Effect on Stock Returns and Fluctuation

• Main Authors: Yen-Ju Hsu, 許嫣茹
• Other Authors: Yanzhi Wang
• Format: Others
• Language: en_US
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/4wq7ug

博士 === 國立臺灣大學 === 財務金融學研究所 === 107 === This study examines and compares the sentiment effects driven by trading and news information on market returns and volatility as well as the applicability of news sentiment in portfolio construction. We employ linguistic analysis to construct the market aggregate news sentiment index (MANSI), drawn from daily financial news about Taiwanese listed firms, and form the investor sentiment index (SI) by following Baker and Wurgler (2006). Evidence shows that MANSI has a stronger influence on market stock returns and volatility than investor sentiment. The results also reveal that the news sentiment effect is more profound during market expansion periods. The cross-sectional portfolio analyses conditionally suggest that lower news sentiment on smaller, more volatile, and less profitable volatile stocks generate higher returns. In addition, we develop long-short portfolios based on size, volatility, and profitability to show that the previous MANSI state is a significant determinant of portfolio returns. Additionally, MANSI has more influence on the trading behavior of foreign institutional investors and dealers, whereas investor sentiment reveals a stronger influence on domestic institutional traders. The results suggest that news sentiment can be an effective proxy for market returns and volatility, which can be applied in portfolio construction.