Music Sentiment and Stock Returns Around the World

Alex Edmans, Adrian Fernandez, Alexandre Garel and Ivan Indriawan

No 15756, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events, nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors and weather conditions. We find that music sentiment is positively correlated with same-week market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when short-sale constraints limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility.

Keywords: Investor sentiment; Investor mood; Behavioral finance (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cul
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Music sentiment and stock returns around the world (2022)
Working Paper: Music Sentiment and Stock Returns Around the World (2021)
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