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Measuring market volatility connectedness to media sentiment

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  • Abdollahi, Hooman
  • Fjesme, Sturla L.
  • Sirnes, Espen

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.

Suggested Citation

  • Abdollahi, Hooman & Fjesme, Sturla L. & Sirnes, Espen, 2024. "Measuring market volatility connectedness to media sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000159
    DOI: 10.1016/j.najef.2024.102091
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    2. Sarula Bai & Jaewon Jung & Shun Li, 2024. "The Spillover Effects of Market Sentiments on Global Stock Market Volatility: A Multi-Country GJR-GARCH-MIDAS Approach," JRFM, MDPI, vol. 17(12), pages 1-23, December.
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    More about this item

    Keywords

    Financial market volatility; Time connectedness; Transmission mechanism; News sentiment; Twitter sentiment; Natural language processing;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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