Music sentiment and stock returns around the world

Edmans, A, Fernandez-Perez, A, Garel, A and Indriawan, I (2022) Music sentiment and stock returns around the world. Journal of Financial Economics, 145 (2). pp. 234-254. ISSN 0304-405X

Abstract

This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors, weather conditions, and COVID-related restrictions. We find that music sentiment is positively correlated with same-week equity market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when trading restrictions limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility. It is negatively associated with government bond returns, consistent with a flight to safety.

More Details

Item Type: Article
Subject Areas: Finance
Date Deposited: 23 Nov 2021 09:31
Date of first compliant deposit: 23 Nov 2021
Last Modified: 17 Sep 2022 00:29
URI: https://lbsresearch.london.edu/id/eprint/2142
More

Export and Share


Download

Accepted Version - Text
  • Restricted to Repository staff only
  • Available under License

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item