News versus Sentiment: Comparing Textual Processing Approaches for Predicting Stock Returns

News versus Sentiment: Comparing Textual Processing Approaches for Predicting Stock Returns

Steven L. Heston University of Maryland – Department of Finance

Nitish Ranjan Sinha Board of Governers of the Federal Reserve System

September 4, 2013
Robert H. Smith School Research Paper

This paper uses a dataset of over 900,000 news stories to test whether news can predict stock returns. It finds that firms with no news have distinctly different average future returns than firms with news. We measure sentiment with the Harvard psychosocial dictionary used by Tetlock, Saar-Tsechansky, and Macskassy (2008), the financial dictionary of Loughran and McDonald (2011), and a proprietary Thomson-Reuters neural network. Simpler processing techniques predict short-term returns that are quickly reversed, while more sophisticated techniques predict larger and more persistent returns. Conforming previous research, daily news predicts stock returns for only 1-2 days. But weekly news predicts stock returns for a quarter year. Positive news stories increase stock returns quickly, but negative stories have a long-delayed reaction.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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