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Informativeness of the market news sentiment in the Taiwan stock market

Author

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  • Wei, Yu-Chen
  • Lu, Yang-Cheng
  • Chen, Jen-Nan
  • Hsu, Yen-Ju

Abstract

This study constructs a market “aggregate news sentiment index” (ANSI) based on Chinese financial news relating to all the listed firms on the Taiwan Stock Exchange. We analyze the relationship between the ANSI and the market responses, which includes the returns, trading values, turnover ratios and volatility index, and the ANSI is divided into five regions. Our empirical results reveal that with an increase in the ANSI in the previous month, there is a corresponding increase in the trading value along with a reduction in the investor fear gauge of the Taiwan volatility index (TVIX). Granger causality tests indicate that both the weekly and monthly ANSIs could be leading indicators of market returns if the different regions of the ANSI are accounted for. In a potential application of our findings to portfolio management, we find that when the lagged term of the ANSI is classified in the highest regions, value-weighted portfolios comprising stocks with the highest market values, lowest price-to-book ratios and lower turnover ratios will earn the highest returns. The efficiency of the news sentiment in portfolio applications is consistent over time. This study contributes to the existing literature by demonstrating that the news sentiment level reflected in qualitative news reports can be effectively incorporated as a proxy to provide valuable support to portfolio decision making.

Suggested Citation

  • Wei, Yu-Chen & Lu, Yang-Cheng & Chen, Jen-Nan & Hsu, Yen-Ju, 2017. "Informativeness of the market news sentiment in the Taiwan stock market," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 158-181.
  • Handle: RePEc:eee:ecofin:v:39:y:2017:i:c:p:158-181
    DOI: 10.1016/j.najef.2016.10.004
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    References listed on IDEAS

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    More about this item

    Keywords

    News sentiment; Financial news; Market responses; Causality; Portfolio management;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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

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