News and social media emotions in the commodity market

Jiancheng Shen (Department of Business, Leadership, and Management, Regent University, Virginia Beach, Virginia, USA)
Mohammad Najand (Finance Department, Old Dominion University, Norfolk, Virginia, USA)
Feng Dong (Finance Department, Old Dominion University, Norfolk, Virginia, USA)
Wu He (Department of Information Technology and Decision Sciences, Old Dominion University, Norfolk, Virginia, USA)

Review of Behavioral Finance

ISSN: 1940-5979

Publication date: 10 July 2017

Abstract

Purpose

Emotion plays a significant role in both institutional and individual investors’ decision-making process. Emotions affect the perception of risk and the assessment of monetary value. However, there is a lack of empirical evidence available that addresses how investors’ emotions affect commodity market returns. The purpose of this paper is to investigate whether media-based emotions can be used to predict future commodity returns.

Design/methodology/approach

The authors examine the short-term predictive power of media-based emotion indices on the following five days’ commodity returns. The research adopts a proprietary data set of commodity-specific market emotions, which is computed based on a comprehensive textual analysis of sources from newswires, internet news sources and social media. Time series econometrics models (threshold generalized autoregressive conditional heteroskedasticity and vector autoregressive) are employed to analyze 14 years (January 1998-December 2011) of daily observations of the CRB commodity market index, crude oil and gold returns, and the market-level sentiments and emotions (optimism, fear and joy).

Findings

The empirical results suggest that the commodity-specific emotions (optimism, fear and joy) have significant influence on individual commodity returns, but not on commodity market index returns. Additionally, the research findings support the short-term predictability of the commodity-specific emotions on the following five days’ individual commodity returns. Compared to the previous studies of news sentiment on commodity returns (Borovkova, 2011; Borovkova and Mahakena, 2015; Smales, 2014), this research provides further evidence of the effects of news and social media-based emotions (optimism, fear and joy) in the commodity market. Additionally, this work proposes that market emotion incorporates both a sentimental effect and appraisal effect on commodity returns. Empirical results are shown to support both the sentimental effect and appraisal effect when market sentiment is controlled in crude oil and gold spot markets.

Originality/value

This paper adopts the valence-arousal approach and cognitive appraisal approach to explain financial anomalies caused by investors’ emotions. Additionally, this is the first paper to explore the predictive power of investors’ emotions (optimism, fear and joy) on commodity returns.

Keywords

Acknowledgements

The authors wish to thank Richard Peterson, Managing Director at MarketPsych; Elijah DePalma, Senior Quantitative Research Analyst at Thomson Reuters for providing the authors with the proprietary Thomson Reuters MarketPsych Indices (TRMI) data. The authors also acknowledge valuable feedback from the anonymous reviewer.

Citation

Shen, J., Najand, M., Dong, F. and He, W. (2017), "News and social media emotions in the commodity market", Review of Behavioral Finance, Vol. 9 No. 2, pp. 148-168. https://doi.org/10.1108/RBF-09-2016-0060

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

To read the full version of this content please select one of the options below

You may be able to access this content by logging in via Shibboleth, Open Athens or with your Emerald account.
To rent this content from Deepdyve, please click the button.
If you think you should have access to this content, click the button to contact our support team.