Chen, Cathy Yi-Hsuan Fengler, Matthias R. Härdle, Wolfgang Karl Liu, Yanchu
Year of Publication:
IRTG 1792 Discussion Paper No. 2019-015
We distill tone from a huge assortment of NASDAQ articles to examine the predictive power of media-expressed tone in single-stock option markets and equity markets. We find that (1) option markets are impacted by media tone; (2) option variables predict stock returns along with tone; (3) option variables orthogonalized to public information and tone are more effective predictors of stock returns; (4) overnight tone appears to be more informative than trading- time tone, possibly due to a different thematic coverage of the trading versus the overnight archive; (5) tone disagreement commands a strong positive risk premium above and beyond market volatility.
option markets equity markets stock return predictability media tone topic model