The hasty wisdom of the mob: How market sentiment predicts stock market behavior

M. S. Checkley, D. Añón Higón, H. Alles

Research output: Contribution to journalArticle

14 Citations (Scopus)

Abstract

We explore the ability of sentiment metrics, extracted from micro-blogging sites, to predict stock markets. We also address sentiments’ predictive time-horizons. The data concern bloggers’ feelings about five major stocks. Taking independent bullish and bearish sentiment metrics, granular to two minute intervals, we model their ability to forecast stock price direction, volatility, and traded volume. We find evidence of a causal link from sentiments to stock price returns, volatility and volume. The predictive time-horizon is minutes, rather than hours or days. We argue that diverse and high volume sentiment is more predictive of price volatility and traded volume than near-consensus is predictive of price direction. Causality is ephemeral. In this sense, the crowd is more a hasty mob than a source of wisdom.

Original languageEnglish
Pages (from-to)256-263
Number of pages8
JournalExpert Systems with Applications
Volume77
Early online date3 Feb 2017
DOIs
Publication statusPublished - 1 Jul 2017
Externally publishedYes

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