9
Sentiment reversals as buy signals
John Kittrell
ABSTRACT
The company-specific metric of net news sentiment is defined and shown to predict long-term positive excess stock returns. A sequence of news stories about a company induces a sequence of sentiment measurements (positive or negative relative to the company), and when significant movements of such sequences from negative to positive are treated as buy signals, the universe of stocks so defined outperforms the S&P 500 index over a 1-year time horizon. If the metric is further refined to incorporate extended periods of news coverage, excess returns are improved. However, the event frequency and subsequent outperformance of such sentiment reversals are sensitive to market environments.
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