Media Sentiment and Currency Reversals

Ilias Filippou, Mark Taylor and Zigan Wang

Journal of Financial and Quantitative Analysis, 2024, vol. 59, issue 3, 1401-1429

Abstract: Analyzing 48 foreign exchange (FX) rates and 1.2 million FX-related news articles over a 35-year period, using digital textual analysis, we find that a currency reversal investment strategy that buys (sells) currencies with low (high) media sentiment offers strong positive and statistically significant returns and Sharpe ratios. The results are robust and the strategy adds value over other currency premia determinants. Analysts’ forecasts systematically mispredict the reversal strategy. This is the first article to show that price reversals based on media sentiment are a well-defined feature of the FX market.

Date: 2024
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Working Paper: Media Sentiment and Currency Reversals (2021)
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