A new GLO Discussion Paper provides evidence that investor sentiments and emotions derived from stock market-related Twitter tweets are significant predictors of stock market movements in developed and emerging markets.

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GLO Discussion Paper No. 502, 2020

Sentiment, emotions and stock market predictability in developed and emerging markets – Download PDF
by Steyn, Dimitri H. W. & Greyling, Talita & Rossouw, Stephanie & Mwamba, John M.

GLO Fellows Talita Greyling and Stephanie Rossouw

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Author Abstract: This paper investigates the predictability of stock market movements using text data extracted from the social media platform, Twitter. We analyze text data to determine the sentiment and the emotion embedded in the tweets and use them as explanatory variables to predict stock market movements. The study contributes to the literature by analyzing high-frequency data and comparing the results obtained from analyzing emerging and developed markets, respectively. To this end, the study uses three different Machine Learning Classification Algorithms, the Naïve Bayes, K-Nearest Neighbors and the Support Vector Machine algorithm. Furthermore, we use several evaluation metrics such as the Precision, Recall, Specificity and the F-1 score to test and compare the performance of these algorithms. Lastly, we use the K-Fold Cross-Validation technique to validate the results of our machine learning models and the Variable Importance Analysis to show which variables play an important role in the prediction of our models. The predictability of the market movements is estimated by first including sentiment only and then sentiment with emotions. Our results indicate that investor sentiment and emotions derived from stock market-related Tweets are significant predictors of stock market movements, not only in developed markets but also in emerging markets.

GLO Discussion Papers are research and policy papers of the GLO Network which are widely circulated to encourage discussion. Provided in cooperation with EconStor, a service of the ZBW – Leibniz Information Centre for Economics, GLO Discussion Papers are among others listed in RePEc (see IDEAS,  EconPapers). Complete list of all GLO DPs – downloadable for free.

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