Editor’s Note: The Academic Research Insight will be a weekly short-form research summary on research that is directly related to investing. Elisabetta Basilico (a PhD and a CFA!) will be driving the effort, which will supplement our long-form summaries, in-house research, and general research commentary. We look forward to empowering investors through education!
- Title: THE SIXTH FACTOR- A SOCIAL MEDIA FACTOR DERIVED DIRECTLY FROM MEDIA SENTIMENTS
- Authors: JIM LIEW AND TAMAS BUDAVARI
- Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, SPRING 2017 (version here)
# What are the research questions?:
- Does the social media factor (created using tweet sentiments from StockTwits.com) explain the time-series variation in return for a sample of securities?
- Is the six factors model (the five factors Fama-French model PLUS the social media factor) better at explaining the cross-section of future returns?
#What are the Academic Insights?:
With the strong caveat that this study is tested on a short time frame ( January 2013-November 2015) and on a small sample ( 15 stocks), it finds that:
Should You Go All In On Water Like Michael Burry?
Water investments? Michael Burry was one of the first institutional investors to bet against the US subprime mortgage market in the mid-2000s, and today he’s concentrating all of his investment efforts on one commodity: water. Burry’s focus on water has attracted plenty of attention to the commodity in the investment community but trying to profit Read More
- YES- positive sentiment ( defined as the BULLISH percentage) on stocks is associated with positive returns
- YES- the relationship between stock twits and future returns survives beyond the presence of traditional factors ( the Fama-French five factors model)
#Why does it matter? :
Financial technology (fintech) is undoubtedly changing the mechanism through which information is assembled and delivered. It is plausible to expect that prices should incorporate all publicly available information both from traditional and non-traditional sources (such as tweets). However, would such a study pass the Harvey et al. (2016) “smell test” of robust research?
The most important chart of the paper:
Elisabetta Basilico, Ph.D., CFA, (@ebasilico) is an independent investment consultant. With co-author Tommi Johnsen, PhD, she is writing an upcoming book on research backed investing. You can learn more at http://academicinsightsoninvesting.com/
Note: This site provides no information on our value investing ETFs or our momentum investing ETFs. Please refer to this site.
Join thousands of other readers and subscribe to our blog.
Please remember that past performance is not an indicator of future results. Please read our full disclaimer. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.
Definitions of common statistics used in our analysis are available here (towards the bottom)
Article by Elisabetta Basilico, PhD, CFA – Alpha Architect