Music sentiment and stock returns around the world

Alex Edmans, Adrian Fernandez-Perez, Alexandre Garel and Ivan Indriawan

Journal of Financial Economics, 2022, vol. 145, issue 2, 234-254

Abstract: This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors, weather conditions, and COVID-related restrictions. We find that music sentiment is positively correlated with same-week equity market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when trading restrictions limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility. It is negatively associated with government bond returns, consistent with a flight to safety.

Keywords: Investor sentiment; Investor mood; Behavioral finance (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Music Sentiment and Stock Returns Around the World (2021)
Working Paper: Music Sentiment and Stock Returns Around the World (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:2:p:234-254

DOI: 10.1016/j.jfineco.2021.08.014

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