Words matter: News Sentiment Analysis for Financial Markets
News drives financial markets: the flow of fresh information and opinions, reflected in news items, is consumed by market participants who then act upon this information, buying and selling financial assets. News is a rich source of information, and the sentiment, i.e., the tone of financial news, reflects how people perceive financial markets and how those perceptions change over time.
News forms our perception of reality and, since we act on that perception, reality is -in turn- shaped by news. When we characterize elusive concepts such as “the state of financial markets” or “the health of the economy”, we should realize that the socio-economic reality is the result of human behaviour and interactions. Based on the available information, market participants – we – form our own perception of reality whereupon we act. In this way the loop is closed, and reality is driven by our perception of it. As a result, the news, and especially its “tone”, or sentiment, not only can change our perception of the reality – it can change reality itself.