A Mathematical Filtering and Prediction Framework for Chinese Financial News Sentiment Signals

Raw sentiment extracted from Chinese financial news is noisy and difficult to use directly for market prediction. This study proposes a mathematical filtering framework that converts noisy Chinese financial news sentiment into reliable quantitative signals for financial market prediction. Three daily sentiment measures were constructed from Chinese financial news: sentiment mean, sentiment dispersion, and polarity imbalance. Seven filtering methods were applied to each measure, including exponential smoothing, autoregressive filtering, ARIMA filtering, moving average smoothing, discrete wavelet transform, Savitzky–Golay filtering, and Kalman filtering. The seven filtered outputs were averaged to produce an ensemble-smoothed sentiment signal. Support vector machines and neural networks were then used to compare the predictive performance of raw and filtered signals for stock index log returns and realized volatility. Filtering reduced the standard deviation of sentiment mean by 48%, sentiment dispersion by 55%, and polarity imbalance by 50%, while mean levels remained stable. Filtered sentiment consistently outperformed raw sentiment across all model configurations. The improvement was larger for realized volatility than for returns: the best support vector machine reduced volatility prediction error by 16.9% and return prediction error by 5.8%. A moderate neural network with 20 hidden neurons achieved optimal performance for both outcomes. Mathematical filtering extracts stable and informative sentiment signals from Chinese financial news. Filtered sentiment is more useful than raw sentiment for predicting market volatility, and the improvement holds across multiple machine learning models.