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Econometrics 2017, 5(3), 35; doi:10.3390/econometrics5030035

Building News Measures from Textual Data and an Application to Volatility Forecasting

1
Department of Statistical Sciences, University of Padova/via Cesare Battisti, 241, 35121 Padova PD, Italy
2
Department of Economics and Management, University of Padova/via del Santo, 33, 35123 Padova PD, Italy
*
Author to whom correspondence should be addressed.
Academic Editors: J. James Reade and Marc S. Paolella
Received: 5 April 2017 / Revised: 2 August 2017 / Accepted: 14 August 2017 / Published: 19 August 2017
(This article belongs to the Special Issue Big Data in Economics and Finance)
View Full-Text   |   Download PDF [453 KB, uploaded 19 August 2017]   |  

Abstract

We retrieve news stories and earnings announcements of the S&P 100 constituents from two professional news providers, along with ten macroeconomic indicators. We also gather data from Google Trends about these firms’ assets as an index of retail investors’ attention. Thus, we create an extensive and innovative database that contains precise information with which to analyze the link between news and asset price dynamics. We detect the sentiment of news stories using a dictionary of sentiment-related words and negations and propose a set of more than five thousand information-based variables that provide natural proxies for the information used by heterogeneous market players. We first shed light on the impact of information measures on daily realized volatility and select them by penalized regression. Then, we perform a forecasting exercise and show that the model augmented with news-related variables provides superior forecasts. View Full-Text
Keywords: volatility; news; Google Trends; sentiment analysis; big data; lasso; regularization volatility; news; Google Trends; sentiment analysis; big data; lasso; regularization
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Caporin, M.; Poli, F. Building News Measures from Textual Data and an Application to Volatility Forecasting. Econometrics 2017, 5, 35.

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