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Do optimistic portfolios outperform pessimistic portfolios: Evidence from textual sentiment

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  • Seetharam, Yudhvir
  • Nyakurukwa, Kingstone

Abstract

We examine whether textual sentiment (from news and social media) explains the cross-section of stock returns. Sentiment scores are used to sort stocks into tercile portfolios daily. Various asset pricing models, including CAPM and Fama-French models, are used to assess the sentiment's impact on returns after accounting for traditional risk factors. Results show that portfolios with higher (optimistic) sentiment consistently yield better average returns across the two sentiment measures and the different asset pricing models.

Suggested Citation

  • Seetharam, Yudhvir & Nyakurukwa, Kingstone, 2024. "Do optimistic portfolios outperform pessimistic portfolios: Evidence from textual sentiment," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003847
    DOI: 10.1016/j.econlet.2024.111900
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    References listed on IDEAS

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    1. David E. Allen & Michael McAleer & Abhay K. Singh, 2019. "Daily market news sentiment and stock prices," Applied Economics, Taylor & Francis Journals, vol. 51(30), pages 3212-3235, June.
    2. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    3. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    4. Arteaga-Garavito, Maria Jose & Croce, Mariano M. & Farroni, Paolo & Wolfskeil, Isabella, 2024. "When the markets get CO.V.I.D: COntagion, Viruses, and Information Diffusion," Journal of Financial Economics, Elsevier, vol. 157(C).
    5. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
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    More about this item

    Keywords

    Asset pricing; Sentiment-augmented asset pricing model; Behavioural finance; Investor sentiment;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General

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