When it Pays to Ignore: Focusing on Top News and their Sentiment

Abstract

Relying on over 300 million news sentiment scores from a global news source covering a battery of different news topics and their sentiment, we construct a novel measure called top news sentiment based on rolling correlations with equity returns. We find an effect of top news sentiment on stock returns with robust timeframes. These findings add to the sentiment literature with the first dynamically created sentiment variable. We are able to construct profitable trading strategies based on top news sentiment. It therefore pays off for investors to be inattentive to most news topics and their sentiment.

Topics & Concepts