Media Sentiment and Currency Reversals

Mark Taylor, Ilias Filippou and Zigan Wang

No 16049, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 such as carry and momentum. Analysts' forecasts systematically mispredict the reversal strategy. This is the first paper to show that price reversals based on media sentiment are a well-defined feature of the foreign exchange market.

Keywords: Fx media news; Digital text; Currency risk premium; Currency reversals (search for similar items in EconPapers)
JEL-codes: C38 C55 F31 G11 G41 Z13 (search for similar items in EconPapers)
Date: 2021-04
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Journal Article: Media Sentiment and Currency Reversals (2024)
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