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Examining the effects of news and media sentiments on volatility and correlation: Evidence from the UK

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  • Alomari, Mohammad
  • Al Rababa’a, Abdel Razzaq
  • El-Nader, Ghaith
  • Alkhataybeh, Ahmad
  • Ur Rehman, Mobeen

Abstract

This paper examines the effect of news and social media sentiments on the stock and bond market volatility and their dynamic return correlation over the period 1998−2017. A principal component analysis is used to construct sentiment variables. Results indicate that news sentiments have more pronounced effects on volatility while social media show stronger impacts on the correlation. These sentiments also exhibit strong and significant reflections on volatility persistence. Furthermore, result show economically different impacts of some sentiments across different market states. Finally, an extended model with news sentiments performs better in forecasting returns than the basic and social media ones.

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  • Alomari, Mohammad & Al Rababa’a, Abdel Razzaq & El-Nader, Ghaith & Alkhataybeh, Ahmad & Ur Rehman, Mobeen, 2021. "Examining the effects of news and media sentiments on volatility and correlation: Evidence from the UK," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 280-297.
    • Handle: RePEc:eee:quaeco:v:82:y:2021:i:c:p:280-297
    DOI: 10.1016/j.qref.2021.09.013
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    More about this item

    Keywords

    Stock-bond correlation; Sentiment; Principal Component Analysis; Volatility;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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