Social Network Financial Sentiment: Constructing Proxies and Testing Returns Predictability on S&P500 Futures Returns

This article examines the ability of StockTwits social network sentiment proxies to predict S&P500 Futures. Positive and negative levels and first-difference sentiment proxies were constructed from 59,907,378 tweets. Using the lexicon approach and Loughran-McDonald positive and negative word lists, this study considers the tweets’ informal language and 140-character constraint. It was found that one standard deviation of change in negative word sentiment compared to the previous day predicts lower S&P500 Futures by 3.4 basis points after controlling for past returns and macroeconomic variables. The results are robust to macro announcements, futures turnover, major Asian and European market returns, the day-of-the-week effect, the January effect, and the holiday effect. Investors can easily replicate the methodology to construct the social network sentiment proxies introduced in this study and employ these proxies in their investment strategies. This study hopes to spur more research to construct and improve social network sentiment proxies for various financial markets

Linking microblogging sentiments to stock price movement: An application of GPT-4

This paper investigates the potential improvement of the GPT-4 Language Learning Model (LLM) in comparison to BERT for modeling same-day daily stock price movements of Apple and Tesla in 2017, based on sentiment analysis of microblogging messages. We recorded daily adjusted closing prices and translated them into up-down movements. Sentiment for each day was extracted from messages on the Stocktwits platform using both LLMs. We develop a novel method to engineer a comprehensive prompt for contextual sentiment analysis which unlocks the true capabilities of modern LLM. This enables us to carefully retrieve sentiments, perceived advantages or disadvantages, and the relevance towards the analyzed company. Logistic regression is used to evaluate whether the extracted message contents reflect stock price movements. As a result, GPT-4 exhibited substantial accuracy, outperforming BERT in five out of six months and substantially exceeding a naive buy-and-hold strategy, reaching a peak accuracy of 71.47 % in May. The study also highlights the importance of prompt engineering in obtaining desired outputs from GPT-4's contextual abilities. However, the costs of deploying GPT-4 and the need for fine-tuning prompts highlight some practical considerations for its use

Three Essays on Opinion Mining of Social Media Texts

This dissertation research is a collection of three essays on opinion mining of social media texts. I explore different theoretical and methodological perspectives in this inquiry. The first essay focuses on improving lexicon-based sentiment classification. I propose a method to automatically generate a sentiment lexicon that incorporates knowledge from both the language domain and the content domain. This method learns word associations from a large unannotated corpus. These associations are used to identify new sentiment words. Using a Twitter data set containing 743,069 tweets related to the stock market, I show that the sentiment lexicons generated using the proposed method significantly outperforms existing sentiment lexicons in sentiment classification. As sentiment analysis is being applied to different types of documents to solve different problems, the proposed method provides a useful tool to improve sentiment classification. The second essay focuses on improving supervised sentiment classification. In previous work on sentiment classification, a document was typically represented as a collection of single words. This method of feature representation suffers from severe ambiguity, especially in classifying short texts, such as microblog messages. I propose the use of dependency features in sentiment classification. A dependency describes the relationship between a pair of words even when they are distant. I compare the sentiment classification performance of dependency features with a few commonly used features in different experiment settings. The results show that dependency features significantly outperform existing feature representations. In the third essay, I examine the relationship between social media sentiment and stock returns. This is the first study to test the bidirectional effects in this relationship. Based on theories in behavioral finance research, I speculate that social media sentiment does not predict stock return, but rather that stock return predicts social media sentiment. I empirically test a set of research hypotheses by applying the vector autoregression (VAR) model on a social media data set, which is much larger than those used in previous studies. The hypotheses are supported by the results. The findings have significant implications for both theory and practice

Recent Advances in Stock Market Prediction Using Text Mining: A Survey

Market prediction offers great profit avenues and is a fundamental stimulus for most researchers in this area. To predict the market, most researchers use either technical or fundamental analysis. Technical analysis focuses on analyzing the direction of prices to predict future prices, while fundamental analysis depends on analyzing unstructured textual information like financial news and earning reports. More and more valuable market information has now become publicly available online. This draws a picture of the significance of text mining strategies to extract significant information to analyze market behavior. While many papers reviewed the prediction techniques based on technical analysis methods, the papers that concentrate on the use of text mining methods were scarce. In contrast to the other current review articles that concentrate on discussing many methods used for forecasting the stock market, this study aims to compare many machine learning (ML) and deep learning (DL) methods used for sentiment analysis to find which method could be more effective in prediction and for which types and amount of data. The study also clarifies the recent research findings and its potential future directions by giving a detailed analysis of the textual data processing and future research opportunity for each reviewed study

Sentiment-induced bubbles in the cryptocurrency market

Cryptocurrencies lack clear measures of fundamental values and are often associated with speculative bubbles. This paper introduces a new way of testing for speculative bubbles based on StockTwits sentiment, which is used as the transition variable in a smooth transition autoregression. The model allows for conditional heteroskedasticity and fat tails of the conditional distribution of the error term, and volatility may depend on the constructed sentiment index. We apply the model to the CRIX index, for which several bubble periods are identified. The detected locally explosive price dynamics, given the specified bubble regime controlled by a smooth transition function, are more akin to the notion of speculative bubble that is driven by exuberant sentiment. Furthermore, we find that volatility increases as the sentiment index decreases, which is analogous to the commonly called leverage effect

Identifying Expert Investors on Financial Microblog via Artificial Neural Networks

In the recent years, thanks to social media platform, a plethora of information has been available to financial investors, that were traditionally dependent from financial institutions advisors. Strategies are now shared among web users, performances of stocks are commented in web communities and hints and suggestions are travelling on the internet with a fast pace, in a way that was unthinkable few years before. Several attempts have been made in the recent past, to predict Market movements and trends from activity of Financial Social Networks participants, and to evaluate if contributions from individuals with high level of expertise distinguish themselves from the rest of crowd. The Present Work is leveraging 6 years of tweets extracted from the financial platform StockTwits.com, deep diving in its content, and proposing a predictive Neural Network algorithm of Multi-Layer Perceptron type, based on features derived from text, social network and sentiment analysis. Users have been classified based on the performance achieved during the training, consistence of their prediction has been verified throughout the time and, finally, a trading strategy has been proposed based on following the top actors. The outcomes highlighted that expert investors are outperforming the wisdom of the crowd, and the trading schema put together generated a return of 38.6%, in 2015, when S&P500 had a slightly negative balance

Predictive Analytics on Emotional Data Mined from Digital Social Networks with a Focus on Financial Markets

This dissertation is a cumulative dissertation and is comprised of five articles. User-Generated Content (UGC) comprises a substantial part of communication via social media. In this dissertation, UGC that carries and facilitates the exchange of emotions is referred to as “emotional data.” People “produce” emotional data, that is, they express their emotions via tweets, forum posts, blogs, and so on, or they “consume” it by being influenced by expressed sentiments, feelings, opinions, and the like. Decisions often depend on shared emotions and data – which again lead to new data because decisions may change behaviors or results. “Emotional Data Intelligence” ultimately seeks an answer to the question of how all the different emotions expressed in public online sources influence decision-making processes. The overarching research topic of this dissertation follows the question whether network structures and emotional sentiment data extracted from digital social networks contain predictive information or they are just noise. Underlying data was collected from different social media sources, such as Twitter, blogs, message boards, or online news and social networking sites, such as Xing. By means of methodologies of social network analysis (SNA), sentiment analysis, and predictive analysis the individual contributions of this dissertation study whether sentiment data from social media or online social networking structures can predict real-world behaviors. The focus lies on the analysis of emotional data and network structures and its predictive power for financial markets. With the formal construction of the data analyses methodologies introduced in the individual contributions this dissertation contributes to the theories of social network analysis, sentiment analysis, and predictive analytics