Journal
FINANCE RESEARCH LETTERS
Volume 48, Issue -, Pages -Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2022.102959
Keywords
News sentiment; Return predictability; Forecasting; Chinese stock market
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Funding
- University of Economics Ho Chi Minh City (Vietnam) [2022-05-08-0979]
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This paper constructs a monthly news-based manager sentiment indicator based on the tone of managers' news reports, showing strong predictability for stock returns, especially in high sentiment periods. For investors, using this forecasting information to optimize stock portfolios can generate significant economic value.
In this paper, we construct a monthly news-based manager sentiment (S-M) based on the tone of managers' news reports. Statistically, S-M has excellent predictability for the subsequent month's return in both in- and out-of-sample periods. we find that S-M contains additional information to forecast stock returns compared to popular economic predictors. After analysing the prediction performance at different sentiment levels, it is found that the prediction power of S-M is far better in the high sentiment period than in the low sentiment period. In terms of investing, S-M also generates considerable economic value for investors who use forecasting information to optimise their stock portfolios.
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