Measuring market volatility connectedness to media sentiment

Hooman Abdollahi, Sturla Fjesme and Espen Sirnes

The North American Journal of Economics and Finance, 2024, vol. 71, issue C

Abstract: We examine directional connectedness patterns from news and social media to financial market volatility using textual analysis and high-frequency data. We find that media sentiment induces market volatility, but the magnitude of that connectedness is time-varying. In addition, news and social media sentiment pertinent to one market transmits volatility to other markets. Finally, we find that sentiment transmits sharp shocks to markets during major events. At other times, there are smaller spillover effects, indicating that the directional connectedness from sentiment to markets follows a spiky pattern over time. We conclude that news and social media play an important (but not constant) role in transmitting volatility across financial markets. This insight explains earlier divergent findings in the literature.

Keywords: Financial market volatility; Time connectedness; Transmission mechanism; News sentiment; Twitter sentiment; Natural language processing (search for similar items in EconPapers)
JEL-codes: E32 G14 G41 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000159

DOI: 10.1016/j.najef.2024.102091

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