Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2020:3: Language Tone in Financial News Media and the Cross-Section of Stock Returns

Mikael Bask (), Lars Forsberg () and Andreas Östling ()
Additional contact information
Mikael Bask: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Lars Forsberg: Department of Statistics, Postal: Department of Statistics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Andreas Östling: Department of Statistics, Postal: Department of Statistics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: Based on 58,256 news articles published in the Financial Times during a 15-year period that cover companies in the DJIA, we find that a trading strategy that longs stocks with the most negative news and shorts stocks with the least negative news is not profitable. Consistent with this result, we also find that the sentiment factor derived from the negativism in the language tone in news articles is not a priced risk factor in the cross-section of stock returns. Nevertheless, the sentiment factor is significant for two-thirds of the stocks when it is added to well-known factor models.

Keywords: asset pricing; factor models; Fama-French; news articles; sentiment

JEL-codes: G01; G11; G12

67 pages, April 27, 2020

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