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Media-expressed tone, option characteristics, and stock return predictability

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  • Chen, Cathy Yi-Hsuan
  • Fengler, Matthias R.
  • Härdle, Wolfgang Karl
  • Liu, Yanchu

Abstract

We investigate the informational content of a huge assortment of NASDAQ articles about a joint cross-section of S&P 500 stock return data and related single-stock option data. Splitting the articles into a trading-time and an overnight archive, we distill tone from each of them. We show that media-expressed tone is informative about option markets and that both option data and tone predict stock returns. The predictive power of option variables is robust to partialling out tone, but varies depending on whether tone is from the overnight or the trading-time archive. A potential reason is that the archives differ in terms of their thematic content. Overall, we conclude that the informational content of option data for predicting single-stock returns extends beyond the information summarized in tone and traditional market factors.

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  • Chen, Cathy Yi-Hsuan & Fengler, Matthias R. & Härdle, Wolfgang Karl & Liu, Yanchu, 2022. "Media-expressed tone, option characteristics, and stock return predictability," Journal of Economic Dynamics and Control, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:dyncon:v:134:y:2022:i:c:s0165188921002256
    DOI: 10.1016/j.jedc.2021.104290
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    Cited by:

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    More about this item

    Keywords

    Media-expressed tone; Option markets; Stock return predictability; Textual analysis; Topic model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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