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News Sentiment and Bonds

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The post “News Sentiment and Bonds” first appeared on the Alpha Architect Blog.

Investing in US 10-year Yields with News Sentiment

  • Nina Gotthelf and Matthias W. Uhl
  • Journal of Investing, Winter 2018
  • A version of this paper can be found here
  • Want to read our summaries of academic finance papers? Check out our Academic Research Insight category

What are the Research Questions?

Academic literature has documented a news sentiment effect on equities ( here and here ). The authors investigate the following research question:

  1. Does the sentiment derived from media content impact bond market investors?

What are the Academic Insights?

By studying  the sentiment extracted from articles from the entire Thomson Reuters news universe (over 400,000 news sentiment items per month from January 2003 to February 2014, totaling 130 observation months) and by applying two techniques to score sentiment (the ‘bag-of-words’ approach and a dynamic learning algorithm), the authors find the following:

  1. YES- outlooks based on the model containing news sentiment are significant for anticipating 10-year US Treasury yields. As a result, profitable trading strategies can be derived to deliver potential outperformance over the benchmark.

Why does it matter?

This paper adds to the literature that alternative data sets like news sentiment can be additive to a traditional macroeconomic variables based model, even in the fixed income asset class.

Visit Alpha Architect Blog to read the full paper

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