Media-expressed tone, Option Characteristics, and Stock Return Predictability

Cathy Yi-Hsuan Chen, Matthias Fengler, Wolfgang Härdle and Yanchu Liu

No 2019-015, IRTG 1792 Discussion Papers from Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series"

Abstract: We distill tone from a huge assortment of NASDAQ articles to examine the predictive power of media-expressed tone in single-stock option markets and equity markets. We find that (1) option markets are impacted by media tone; (2) option variables predict stock returns along with tone; (3) option variables orthogonalized to public information and tone are more effective predictors of stock returns; (4) overnight tone appears to be more informative than trading- time tone, possibly due to a different thematic coverage of the trading versus the overnight archive; (5) tone disagreement commands a strong positive risk premium above and beyond market volatility.

Keywords: option markets; equity markets; stock return predictability; media tone; topic model (search for similar items in EconPapers)
JEL-codes: G12 G14 G41 (search for similar items in EconPapers)
Date: 2019
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Journal Article: Media-expressed tone, option characteristics, and stock return predictability (2022)
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