Do Newspaper Articles Predict Aggregate Stock Returns?

Manuel Ammann, Roman Frey () and Michael Verhofen ()

No 1204, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: We analyze whether newspaper content can predict aggregate future stock returns. Our study is based on articles published in the Handelsblatt, a leading German financial newspaper, from July 1989 to March 2011. We summarize newspaper content in a systematic way by constructing word-count indices for a large number of words. Wordcount indices are instantly available and therefore potentially valuable financial indicators. Our main finding is that the predictive power of newspaper content has increased over time, particularly since 2000. We find that a cluster analysis approach increases the predictive power of newspaper articles substantially. To obtain optimal predictive power, we need at least seven clusters. Our analysis shows that newspaper content is a valuable predictor of future DAX returns in and out of sample.

Keywords: Word Count; Text Mining; Expected Returns; Tactical Asset Allocation. (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-08
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2012:04

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