By |Published On: August 26th, 2019|Categories: Basilico and Johnsen, Academic Research Insight|

Does Social Media Trump News? The Relative Importance of Social Media and News Based Sentiment for Market Timing

  • Stan Beckers
  • Journal of Portfolio Management, Winter 2019
  • 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?

With a growing availability of filtered (news) and unfiltered (social media) information, the author investigates the following question:

  • Do news or social media contain any information that is of relevance for investment decision making and if so are the two sources are complementary or overlapping?

What are the Academic Insights?

By using an extensive sample of directly comparable news- and social media–based sentiment variables ( based on Thomson Reuters Market Psych Indices- TRMI) the author attempts to infer any predictive relationship with monthly global equity market returns. The sample covers 1998-2017 data and the author finds:

  1. News-based variables appear to have on average healthy and promising correlations with future returns. In contrast, social media-based signals have patchy predictive power and tend to be dominated by the corresponding news-based variables.
  2. When testing an investing strategy, the emotion and fundamental equity social media-based signals are dominated by their news counterparts.(1)
  3. The authors find a statistically significant distraction effect.

Why does it matter?

This study compares news based sentiment with social media sentiment. Based on a 20-year history of both social media and news, the author infers that the social media–based sentiment is mostly already captured by that reflected in news-based sources. Despite the proliferation of social media over the study period, the investment importance of the embedded sentiment does not appear to improve through time: the noisy nature of social media chatter does not dissipate as the number of sources increases.

One thing to keep in mind: this study focused on monthly data. It is possible that social media sentiment contains information over shorter investment horizons.

The Most Important Chart from the Paper

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index.


The author uses a broad set of news and social media sources to infer sentiment about the global equity market. The author evaluates the contemporaneous and lagged relationship between the two sources and establishes how they inform each other. This study finds that lagged social media and news can help forecast next month’s global stock market return. However, adding social media information to news-based sources does on average not improve the results of a market timing investment strategy. Overall, the news-based equity fundamentals sentiment is the more consistent and reliable source for monthly timing of the MSCI World Index.

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About the Author: Wesley Gray, PhD

Wesley Gray, PhD
After serving as a Captain in the United States Marine Corps, Dr. Gray earned an MBA and a PhD in finance from the University of Chicago where he studied under Nobel Prize Winner Eugene Fama. Next, Wes took an academic job in his wife’s hometown of Philadelphia and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management firm dedicated to an impact mission of empowering investors through education. He is a contributor to multiple industry publications and regularly speaks to professional investor groups across the country. Wes has published multiple academic papers and four books, including Embedded (Naval Institute Press, 2009), Quantitative Value (Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016). Dr. Gray currently resides in Palmas Del Mar Puerto Rico with his wife and three children. He recently finished the Leadville 100 ultramarathon race and promises to make better life decisions in the future.

Important Disclosures

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice.  Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).

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