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Online reviews can predict long-term returns of individual stocks

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  • Junran Wu
  • Ke Xu
  • Jichang Zhao

Abstract

Online reviews are feedback voluntarily posted by consumers about their consumption experiences. This feedback indicates customer attitudes such as affection, awareness and faith towards a brand or a firm and demonstrates inherent connections with a company's future sales, cash flow and stock pricing. However, the predicting power of online reviews for long-term returns on stocks, especially at the individual level, has received little research attention, making a comprehensive exploration necessary to resolve existing debates. In this paper, which is based exclusively on online reviews, a methodology framework for predicting long-term returns of individual stocks with competent performance is established. Specifically, 6,246 features of 13 categories inferred from more than 18 million product reviews are selected to build the prediction models. With the best classifier selected from cross-validation tests, a satisfactory increase in accuracy, 13.94%, was achieved compared to the cutting-edge solution with 10 technical indicators being features, representing an 18.28% improvement relative to the random value. The robustness of our model is further evaluated and testified in realistic scenarios. It is thus confirmed for the first time that long-term returns of individual stocks can be predicted by online reviews. This study provides new opportunities for investors with respect to long-term investments in individual stocks.

Suggested Citation

  • Junran Wu & Ke Xu & Jichang Zhao, 2019. "Online reviews can predict long-term returns of individual stocks," Papers 1905.03189, arXiv.org.
    • Handle: RePEc:arx:papers:1905.03189
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    References listed on IDEAS

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    1. Chunting Liu & Shanshan Wang & Guozhu Jia, 2020. "Exploring E-Commerce Big Data and Customer-Perceived Value: An Empirical Study on Chinese Online Customers," Sustainability, MDPI, vol. 12(20), pages 1-22, October.
    2. Menghan Sun & Jichang Zhao, 2020. "How do online consumers review negatively?," Papers 2004.13463, arXiv.org.

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