Predicting FTSE 100 returns and volatility using sentiment analysis

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Abstract

We investigate the statistical and economic effect of positive and negative sentiment on daily excess returns and volatility in the FTSE 100 index, using business news articles published by the Guardian Media Group between 01/01/2000 and 01/06/2016. The analysis indicates that while business news sentiment derived from articles aimed at retail traders does not influence excess returns in the FTSE 100 index, it does affect volatility, with negative sentiment increasing volatility and positive sentiment reducing it. Further, an ETF‐based trading strategy based on these findings is found to outperform the naïve buy‐and‐hold approach.
Original languageEnglish
Pages (from-to)253-274
Number of pages22
JournalAccounting and Finance
Volume58
Issue numberS1
Early online date12 May 2018
DOIs
Publication statusPublished - Nov 2018

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Sentiment
Sentiment analysis
News
Excess returns
Excess volatility
Traders
Retail
Economic effect
Trading strategies

Cite this

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title = "Predicting FTSE 100 returns and volatility using sentiment analysis",
abstract = "We investigate the statistical and economic effect of positive and negative sentiment on daily excess returns and volatility in the FTSE 100 index, using business news articles published by the Guardian Media Group between 01/01/2000 and 01/06/2016. The analysis indicates that while business news sentiment derived from articles aimed at retail traders does not influence excess returns in the FTSE 100 index, it does affect volatility, with negative sentiment increasing volatility and positive sentiment reducing it. Further, an ETF‐based trading strategy based on these findings is found to outperform the na{\"i}ve buy‐and‐hold approach.",
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Predicting FTSE 100 returns and volatility using sentiment analysis. / Johnman, Mark; Vanstone, Bruce J; Gepp, Adrian.

In: Accounting and Finance, Vol. 58, No. S1, 11.2018, p. 253-274.

Research output: Contribution to journalArticleResearchpeer-review

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AU - Vanstone, Bruce J

AU - Gepp, Adrian

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AB - We investigate the statistical and economic effect of positive and negative sentiment on daily excess returns and volatility in the FTSE 100 index, using business news articles published by the Guardian Media Group between 01/01/2000 and 01/06/2016. The analysis indicates that while business news sentiment derived from articles aimed at retail traders does not influence excess returns in the FTSE 100 index, it does affect volatility, with negative sentiment increasing volatility and positive sentiment reducing it. Further, an ETF‐based trading strategy based on these findings is found to outperform the naïve buy‐and‐hold approach.

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