The time-varying nature of social media sentiments in modeling stock returns

The broad aim of this paper is to answer the following query: is the relationship between social media sentiments and stock returns time-varying? To provide a satisfactory response, a novel methodology a symbiosis of Bayesian Dynamic Linear Models and Seemingly Unrelated Regressions is introduced. Two sets of Dow Jones Industrial Average stock data and corresponding social media data from Yahoo! Finance stock message boards are used in a comprehensive empirical study. Some key findings are: (a) Affirmative response to the above question; (b) Models with only social media sentiments and market returns perform at least as well as models that include Fama-French and Momentum factors; (c) There are significant correlations between stocks, ranging from 0.8 to 0.6 in both data sets. (C) 2017 Elsevier B.V. All rights reserved.