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Media Sentiment and Currency Reversals

Analyzing 48 foreign exchange (FX) rates and 1.2 million FX-related news articles over a 35-year period, using digital textual analysis, we find that a currency reversal investment strategy that buys (sells) currencies with low (high) media sentiment offers strong positive and statistically signific...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2024-05, Vol.59 (3), p.1401-1429
Main Authors: Filippou, Ilias, Taylor, Mark P., Wang, Zigan
Format: Article
Language:English
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Summary:Analyzing 48 foreign exchange (FX) rates and 1.2 million FX-related news articles over a 35-year period, using digital textual analysis, we find that a currency reversal investment strategy that buys (sells) currencies with low (high) media sentiment offers strong positive and statistically significant returns and Sharpe ratios. The results are robust and the strategy adds value over other currency premia determinants. Analysts’ forecasts systematically mispredict the reversal strategy. This is the first article to show that price reversals based on media sentiment are a well-defined feature of the FX market.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109023000534