MPRA_paper_99003.pdf - Munich Personal RePEc Archive Search of Attention in Financial Market Chong Terence Tai Leung and Li Chen The Chinese University

MPRA_paper_99003.pdf - Munich Personal RePEc Archive Search...

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Munich Personal RePEc Archive Search of Attention in Financial Market Chong, Terence Tai Leung and Li, Chen The Chinese University of Hong Kong 1 January 2020 Online at MPRA Paper No. 99003, posted 12 Mar 2020 01:43 UTC
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i Search of Attention in Financial Market Terence Tai-Leung CHONG, Chen LI Department of Economics, The Chinese University of Hong Kong January 2020 Abstract: This study employs correlation coefficients and the factor- augmented vector autoregressive (FAVAR) model to investigate the relationship between the stock market and investors’ sentiment measured by big data. The investors’ sentiment index is constructed from a pool of relative keyword series provided by the Baidu Index. We target two composite stock indices, namely the Hang Seng Index and the Shanghai Composite Index. We first compute the Pearson product-moment correlation coefficient to find the degree of correlation between keywords and composite stock price indices. Then, we apply the FAVAR model to obtain the impulse response of stock price to the investors’ sentiment index. Finally, we examine the leading effects of keywords on stock prices using lagged correlation coefficients. We obtain two main findings. First, a strong correlation exists between investors’ sentiment and composite stock price: Second, before and after the launch of the Shanghai-Hong
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Kong Stock Connect, the keywords affecting the fluctuation of the Hang Seng Index are different.
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1 1 Introduction With the advancement of technology, the Internet has become a very important source of information for investors. Over the past decade, investors have increasingly relied on online media for information. They conveniently make trading decisions by analyzing data obtained from the Internet (Brynjolfsson et al., 2013). Researchers have explored the impact of media on the real economy and other aspects. Luong et al. (2019) assess the impact of media on trade. Liu et al. (2017) discuss the impact of the Bo Xilai political scandal on policy uncertainty. In addition to receiving information provided by the media, investors also seek out information for themselves. Internet search engines, such as Baidu, Weibo, and Google, have already developed specific statistical methods to report search frequency on a daily or weekly basis. For instance, Google Trends provides search index services around the world. However, the most popular search engine in China is Baidu, which amassed approximately 0.87 billion users in 2017, reported by Soho Finance. According to Alexa, a web analytics firm, Baidu is the largest search engine used by Chinese people and the fourth largest website in the world. Another crucial search index is from Weibo, the application software of Alibaba Group, the largest communication and entertainment platform in China. This website provides useful instruments for conducting economic research. In recent years, many researchers have focused on the importance of the Internet search index to the market. Da et al. (2011) discuss the effects
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of search volume on the stock market. They develop a new method to
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