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Music Sentiment and Stock Returns Around the World

Author

Listed:
  • Alex Edmans
  • Adrian Fernandez-Perez
  • Alexandre Garel

    (Audencia Business School)

  • Ivan Indriawan

Abstract

This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors, weather conditions, and COVID-related restrictions. We find that music sentiment is positively correlated with same-week equity market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when trading restrictions limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility. It is negatively associated with government bond returns, consistent with a flight to safety.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Alex Edmans & Adrian Fernandez-Perez & Alexandre Garel & Ivan Indriawan, 2021. "Music Sentiment and Stock Returns Around the World," Post-Print hal-03324805, HAL.
    • Handle: RePEc:hal:journl:hal-03324805
    DOI: 10.1016/j.jfineco.2021.08.014
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    4. Xu, Alan, 2022. "Air pollution and mediation effects in stock market, longitudinal evidence from China," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. Yuan Li, 2022. "Mood Beta, Sentiment and Stock Returns in China," SAGE Open, , vol. 12(1), pages 21582440221, February.
    6. Vu Le Tran & Guillaume Coqueret, 2023. "ESG news spillovers across the value chain," Post-Print hal-04325746, HAL.
    7. Hadhri, Sinda, 2023. "Do cryptocurrencies feel the music?," International Review of Financial Analysis, Elsevier, vol. 89(C).
    8. Tran, Vu Le, 2023. "Sentiment and covariance characteristics," International Review of Financial Analysis, Elsevier, vol. 86(C).
    9. Chiah, Mardy & Hu, Xiaolu & Zhong, Angel, 2022. "Photo sentiment and stock returns around the world," Finance Research Letters, Elsevier, vol. 46(PB).
    10. Ma, Feng & Lu, Xinjie & Liu, Jia & Huang, Dengshi, 2022. "Macroeconomic attention and stock market return predictability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    11. John Hua Fan & Sebastian Binnewies & Sanuri De Silva, 2023. "Wisdom of crowds and commodity pricing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(8), pages 1040-1068, August.
    12. Guo, Feng & Lin, Zhiyuan & Lyu, Xiaoliang & Shi, Qingling, 2023. "Does air pollution influence music sentiment? Measuring music sentiment by machine learning," Journal of Asian Economics, Elsevier, vol. 87(C).
    13. Dim, Chukwuma & Koerner, Kevin & Wolski, Marcin & Zwart, Sanne, 2022. "Hot off the press: News-implied sovereign default risk," EIB Working Papers 2022/06, European Investment Bank (EIB).
    14. Uzmanoglu, Cihan, 2022. "The stock market tips," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 271-287.
    15. Kerssenfischer, Mark & Schmeling, Maik, 2022. "What moves markets?," Discussion Papers 16/2022, Deutsche Bundesbank.
    16. Bai, Chenjiang & Duan, Yuejiao & Fan, Xiaoyun & Tang, Shuai, 2023. "Financial market sentiment and stock return during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 54(C).

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    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

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