News sentiment and stock market volatility

Yen-Ju Hsu (), Yang-Cheng Lu () and J. Jimmy Yang ()
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Yen-Ju Hsu: Fu Jen Catholic University
Yang-Cheng Lu: Ming Chuan University
J. Jimmy Yang: Oregon State University

Review of Quantitative Finance and Accounting, 2021, vol. 57, issue 3, No 10, 1093-1122

Abstract: Abstract This study investigates the effect of news sentiment on stock market volatility using the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model and measures the asymmetric effect with the GJR-GARCH model. We adopt patented linguistic analysis that considers the semantic orientation process to quantify financial news that may attract investor attention. This study distinguishes between unclassified market news sentiment and macroeconomic-related news effects. The evidence suggests that both contemporaneous and lagged news are determinants of market volatility. The effect is especially strong with the market aggregate news sentiment index (ANSI) and the negative ANSI, particularly during the 2008–2009 financial crisis period. This analysis of news sentiment improves the accuracy of in-sample and out-of-sample volatility forecasting.

Keywords: Volatility; GARCH model; Asymmetric effect; News sentiment; Macroeconomic news (search for similar items in EconPapers)
JEL-codes: C5 G1 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:57:y:2021:i:3:d:10.1007_s11156-021-00971-8

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DOI: 10.1007/s11156-021-00971-8

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