Comparing sentiment measures in mutual fund performance

Abstract

Purpose

The purpose of this study is to investigate whether the direct and indirect sentiment measures are similar in explaining mutual fund performance.

Design/methodology/approach

The authors examine the role of direct and indirect sentiment measures on fund performance in two scenarios. One is when a sentiment measure is added to market models, and the other is when it used independently. Also, the authors propose a system science theory to explain the findings.

Findings

The authors find that both direct and indirect sentiment measures are integral to the benchmark models to explain fund performance. However, while the explanatory power of the direct sentiment index is robust when used independently or collectively, the indirect sentiment measures can explain fund performance only when used along with other market factors.

Originality/value

Given the number of sentiment measures, it is critical to determine whether these measures contain the same information of sentiment. This paper represents the first study on this topic.

Citation

Bu, Q. and Forrest, J. (2021), "Comparing sentiment measures in mutual fund performance", International Journal of Managerial Finance, Vol. 17 No. 3, pp. 478-493. https://doi.org/10.1108/IJMF-02-2020-0092