NBER

Zheng Tracy Ke

Harvard University
Department of Statistics
1 Oxford St.
Cambridge, MA 02140

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Harvard University

NBER Working Papers and Publications

August 2019Predicting Returns With Text Data
with Bryan T. Kelly, Dacheng Xiu: w26186
We introduce a new text-mining methodology that extracts sentiment information from news articles to predict asset returns. Unlike more common sentiment scores used for stock return prediction (e.g., those sold by commercial vendors or built with dictionary-based methods), our supervised learning framework constructs a sentiment score that is specifically adapted to the problem of return prediction. Our method proceeds in three steps: 1) isolating a list of sentiment terms via predictive screening, 2) assigning sentiment weights to these words via topic modeling, and 3) aggregating terms into an article-level sentiment score via penalized likelihood. We derive theoretical guarantees on the accuracy of estimates from our model with minimal assumptions. In our empirical analysis, we text-mi...

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