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arXiv · 1906.00059

Sentiment-Driven Stochastic Volatility Model: A High-Frequency Textual Tool for Economists

Jozef Barunik·Cathy Yi-Hsuan Chen·Jan Vecer
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Abstract

We propose how to quantify high-frequency market sentiment using high-frequency news from NASDAQ news platform and support vector machine classifiers. News arrive at markets randomly and the resulting news sentiment behaves like a stochastic process. To characterize the joint evolution of sentiment, price, and volatility, we introduce a unified continuous-time sentiment-driven stochastic volatility model. We provide closed-form formulas for moments of the volatility and news sentiment processes and study the news impact. Further, we implement a simulation-based method to calibrate the parameters. Empirically, we document that news sentiment raises the threshold of volatility reversion, sustaining high market volatility.

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Jozef Barunik, Cathy Yi-Hsuan Chen, Jan Vecer. 2019-05-31. Sentiment-Driven Stochastic Volatility Model: A High-Frequency Textual Tool for Economists. https://arxiv.org/abs/1906.00059

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