Sentiment, emotions and stock market predictability in developed and emerging markets

Dimitri H. W. Steyn, Talita Greyling (talitag@uj.ac.za), Stephanie Rossouw and John Weirstrass Muteba Mwamba

No 502, GLO Discussion Paper Series from Global Labor Organization (GLO)

Abstract: This paper investigates the predictability of stock market movements using text data extracted from the social media platform, Twitter. We analyse text data to determine the sentiment and the emotion embedded in the Tweets and use them as explanatory variables to predict stock market movements. The study contributes to the literature by analysing high-frequency data and comparing the results obtained from analysing emerging and developed markets, respectively. To this end, the study uses three different Machine Learning Classification Algorithms, the Naïve Bayes, K-Nearest Neighbours and the Support Vector Machine algorithm. Furthermore, we use several evaluation metrics such as the Precision, Recall, Specificity and the F-1 score to test and compare the performance of these algorithms. Lastly, we use the K-Fold Cross-Validation technique to validate the results of our machine learning models and the Variable Importance Analysis to show which variables play an important role in the prediction of our models. The predictability of the market movements is estimated by first including sentiment only and then sentiment with emotions. Our results indicate that investor sentiment and emotions derived from stock market-related Tweets are significant predictors of stock market movements, not only in developed markets but also in emerging markets.

Keywords: Sentiment Analysis; Classification; Stock Prediction; Machine Learning (search for similar items in EconPapers)
JEL-codes: C6 C8 G0 G4 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-big, nep-cmp and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:502

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