Media Indicators

Media Indicators
The purpose of this paper is to introduce several new investment indicators based on media information extracted from thousands of sources through proprietary systems. While news‐item‐level data are highly correlated with contemporaneous price movements, they can also be used to forecast returns. Motivated by economic theory, three media‐based indicators are constructed: intensity, sentiment, and disagreement. Each indicator is individually attractive, while a combined hedged portfolio exhibits an annualized Sharpe ratio of 1.52 over the period 2011–2015. Indicators aggregated at the sector and industry levels also exhibit ability to forecast aggregate returns. The results highlight the potential value of a new set of media‐based indicators for investment professionals.

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By Research (white-paper)
on 5 Feb 2016