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Media Sentiment and International Asset Prices

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  • Samuel P. Fraiberger
  • Dongyeol Lee
  • Mr. Damien Puy
  • Mr. Romain Ranciere

Abstract

We assess the impact of media sentiment on international equity prices using more than 4.5 million Reuters articles published across the globe between 1991 and 2015. News sentiment robustly predicts daily returns in both advanced and emerging markets, even after controlling for known determinants of stock prices. But not all news-sentiment is alike. A local (country-specific) increase in news optimism (pessimism) predicts a small and transitory increase (decrease) in local returns. By contrast, changes in global news sentiment have a larger impact on equity returns around the world, which does not reverse in the short run. We also find evidence that news sentiment affects mainly foreign – rather than local – investors: although local news optimism attracts international equity flows for a few days, global news optimism generates a permanent foreign equity inflow. Our results confirm the value of media content in capturing investor sentiment.

Suggested Citation

  • Samuel P. Fraiberger & Dongyeol Lee & Mr. Damien Puy & Mr. Romain Ranciere, 2018. "Media Sentiment and International Asset Prices," IMF Working Papers 2018/274, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2018/274
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    More about this item

    Keywords

    WP; equity fund; Asset Pricing; Capital Flows; Behavioral Finance; Investor Sentiment; News Media; Natural Language Processing; sentiment shock; sentiment index; state dependence; D. News sentiment; multi-country news; equity return; equity price; Stocks; Asset prices; Stock markets; Emerging and frontier financial markets; Global;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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