Brazilian stock market performance and investor sentiment on Twitter

Dyliane Mouri Silva de Souza and Orleans Silva Martins

Revista de Gestão, 2022, vol. 31, issue 1, 18-33

Abstract: Purpose - This study identified how investor sentiment on Twitter is associated with Brazilian stock market return and trading volume. Design/methodology/approach - The study analyzes 314,864 tweets between January 1, 2017, to December 31, 2018, collected with the Tweepy library. The companies’ financial data were obtained from Refinitiv Eikon. Using the netnographic method, a Twitter Investor Sentiment Index (ISI) was constructed based on terms associated with the stocks. This Twitter sentiment was attributed through machine learning using the Google Cloud Natural Language API. The associations between Twitter sentiment and market performance were performed using quantile regressions and vector auto-regression (VAR) models, because the variables of interest are heterogeneous and non-normal, even as relationships can be dynamic. Findings - In the contemporary period, the ISI is positively correlated with stock market returns, but negatively correlated with trading volume. The autoregressive analysis did not confirm the expectation of a dynamic relationship between sentiment and market variables. The quantile analysis showed that the ISI explains the stock market return, however, only at times of lower returns. It is possible to state that this effect is due to the informational content of the tweets (sentiment), and not to the volume of tweets. Originality/value - The study presents unprecedented evidence for the Brazilian market that investor sentiment can be identified on Twitter, and that this sentiment can be useful for the formation of an investment strategy, especially in times of lower returns. These findings are original and relevant to market agents, such as investors, managers and regulators, as they can be used to obtain abnormal returns.

Keywords: Investor rationality; Investment strategy; Stock market (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:regepp:rege-07-2021-0145

DOI: 10.1108/REGE-07-2021-0145

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