Predicting FTSE 100 returns and volatility using sentiment analysis

Mark Johnman · Bruce James Vanstone · Adrian Gepp

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Stock Market Forecasting Methods

Abstract

Abstract We investigate the statistical and economic effect of positive and negative sentiment on daily excess returns and volatility in the FTSE 100 index, using business news articles published by the Guardian Media Group between 01/01/2000 and 01/06/2016. The analysis indicates that while business news sentiment derived from articles aimed at retail traders does not influence excess returns in the FTSE 100 index, it does affect volatility, with negative sentiment increasing volatility and positive sentiment reducing it. Further, an ETF‐based trading strategy based on these findings is found to outperform the naïve buy‐and‐hold approach.

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References

1990Noise Trader Risk in Financial Markets 2011When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks 2011Twitter mood predicts the stock market 2007Giving Content to Investor Sentiment: The Role of Media in the Stock Market 2004Is All That Talk Just Noise? The Information Content of Internet Stock Message Boards 2008More Than Words: Quantifying Language to Measure Firms' Fundamentals 1980The Extreme Value Method for Estimating the Variance of the Rate of Return 2014The Sum of All FEARS Investor Sentiment and Asset Prices

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