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Predicting FTSE 100 returns and volatility using sentiment analysis

Mark Johnman, Bruce James Vanstone and Adrian Gepp

Accounting and Finance, 2018, vol. 58, issue S1, 253-274

Abstract: We investigate the statistical and economic effect of positive and negative sentiment on daily excess returns and volatility in the FTSE 100 index, using business news articles published by the Guardian Media Group between 01/01/2000 and 01/06/2016. The analysis indicates that while business news sentiment derived from articles aimed at retail traders does not influence excess returns in the FTSE 100 index, it does affect volatility, with negative sentiment increasing volatility and positive sentiment reducing it. Further, an ETF‐based trading strategy based on these findings is found to outperform the naïve buy‐and‐hold approach.

Date: 2018
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Handle: RePEc:bla:acctfi:v:58:y:2018:i:s1:p:253-274