Media-expressed tone, option characteristics, and stock return predictability

Chen, C. Y.-H. , Fengler, M. R., Härdle, W. K. and Liu, Y. (2022) Media-expressed tone, option characteristics, and stock return predictability. Journal of Economic Dynamics and Control, 134, 104290. (doi: 10.1016/j.jedc.2021.104290)

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We investigate the informational content of a huge assortment of NASDAQ articles about a joint cross-section of S&P 500 stock return data and related single-stock option data. Splitting the articles into a trading-time and an overnight archive, we distill tone from each of them. We show that media-expressed tone is informative about option markets and that both option data and tone predict stock returns. The predictive power of option variables is robust to partialling out tone, but varies depending on whether tone is from the overnight or the trading-time archive. A potential reason is that the archives differ in terms of their thematic content. Overall, we conclude that the informational content of option data for predicting single-stock returns extends beyond the information summarized in tone and traditional market factors.

Item Type:Articles
Additional Information:Financial support from the National Natural Science Foundation of China (71991474, 71721001, U1811462 and 72073148) are highly appreciated.
Glasgow Author(s) Enlighten ID:Chen, Professor Cathy Yi-Hsuan
Authors: Chen, C. Y.-H., Fengler, M. R., Härdle, W. K., and Liu, Y.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Journal of Economic Dynamics and Control
ISSN (Online):1879-1743
Published Online:26 November 2021
Copyright Holders:Copyright © 2021 Elsevier
First Published:First published in Journal of Economic Dynamics and Control 134: 104290
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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