News Media Sentiment and Investor Behavior

Roman Kräussl and Elizaveta Mirgorodskaya
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Elizaveta Mirgorodskaya: LSF

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: This paper investigates the impact of news media sentiment on financial market returns and volatility in the long-term. We hypothesize that the way the media formulate and present news to the public produces different perceptions and, thus, incurs different investor behavior. To analyze such framing effects we distinguish between optimistic and pessimistic news frames. We construct a monthly media sentiment indicator by taking the ratio of the number of newspaper articles that contain predetermined negative words to the number of newspaper articles that contain predetermined positive words in the headline and/or the lead paragraph. Our results indicate that pessimistic news media sentiment is positively related to global market volatility and negatively related to global market returns 12 to 24 months in advance. We show that our media sentiment indicator reflects very well the financial market crises and pricing bubbles over the past 20 years. "Keywords:Investor behavior; News media sentiment; Financial market crises; Pricing bubbles; Framing effects"

JEL-codes: E32 G01 G10 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cfn and nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: News media sentiment and investor behavior (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:14-03

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