Investor Sentiment as Measured by Social vs. Traditional Media

Does the sentiment of social media uniquely predict stock market movements, or does it simply mirror the overall sentiment of traditional media? In their May 2021 paper entitled “Investor Sentiment, Media and Stock Returns: The Advancement of Social Media”, Ioanna Lachana and David Schröder compare abilities of daily social and traditional media sentiments to predict daily U.S. stock market returns. They construct positive, negative and pessimism indexes for each of three sources over 2006 through 2020 from:

1. Traditional: 3,776 daily “Markets” columns from the Wall Street Journal (WSJ).
2. Social: 85,116 articles from Seeking Alpha (SA), identified as either “independent” (trade only for themselves) or “corporate” (trade on behalf of others).
3. SA comments: 1.6 million comments that respond to SA articles.

They each day count negative, positive and total numbers of words and combine counts to calculate negative, positive and pessimism index values. Using the specified daily articles/comments and daily S&P 500 Index level during January 2006 through December 2020, they find that: (more…)