The Handbook of News Analytics in Finance

9.3 SENTIMENT REVERSAL UNIVERSES

The only variable left free in Definition 3 is P: the monthly timeframe over which net sentiment is measured. It might be helpful to think of this variable as a kind of “look-back”. As a company marches through time, how much news history about it, looking back in time at any given moment, should be incorporated into a sentiment measurement? Is one month enough or is a broader sweep of history needed? We approach this question by studying 24 distinct universes of sentiment reversals as determined by 1-month to 24-month trailing net news sentiment measurement periods. In particular, for x = 1, …, 24, define the universe U_x to be the sentiment reversals obtained by sequences of the form where m ≥ 32 and 〈N₁, …, N_m〉 is a sequence of news stories about C occurring over at least one month with a relevance score of 100.

Figure 9.1. Stylized depiction of a sentiment reversal 〈N₁, …N_m〉 where p₁ and p₂ are the closing stock prices on date (N₁) and date (N_m), respectively.

Remark 2. The phrase “universe of stocks” is understood here to be a set of pairs, where in a pair one item is a security and the other item is an associated event date.

Universe sizes are further reduced by establishing a market cap minimum. This is an entirely practical consideration, ...