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Event Study and Principal Component Analysis Based on Sentiment Analysis – A Combined Methodology to Study the Stock Market with an Empirical Study

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Abstract

This paper provides an improved method by introducing Sentiment Analysis into the Event Study and Principal Component Analysis. The model is constructed by using the heuristic mean-end analysis. This method enables us to take into investors’ feelings towards related stocks when we study the stock market’s reaction to a given event. This paper investigates the Chinese A-shared market over 2013–2019 to study the influence of rumors and the offsetting impact of rumor clarifications on the stock price. The results indicate that no matter investor sentiment is bullish or bearish, stock price reacts significantly to rumors before as well as when the rumor goes public. Furthermore, clarification offsets the positive abnormal returns caused by rumors with bullish sentiment substantially at a limited level. Still, after five days, it creates a positive effect like the positive rumor does on the stock price. Under the bearish sentiment, clarification brings an insignificant impact on the stock price. The results indicate that the source of rumor may not come from the media and investment decisions established on rumors would be beneficial to investors before as well as after they are published. Moreover, official clarification causes an offset effect, but it is very limited.

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Acknowledgements

This work is partially supported by the National Natural Science Foundation of China (Grant No. 61872084) and also VC Research (VCR 0000017).

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Authors and Affiliations

  1. SCEDT Department of Computer Science & Information Systems, Teesside University, Campus Heart, Southfield Rd, Middlesbrough, TS1 3BX, UK

    Qianwen Xu & Victor Chang

  2. Department of Computer Science and Information Engineering, Asia University, Taichung, Taiwan

    Ching-Hsien Hsu

  3. Department of Medical Research, China Medical University Hospital, Taichung, Taiwan

    Ching-Hsien Hsu

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  1. Qianwen Xu
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  2. Victor Chang
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  3. Ching-Hsien Hsu
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Correspondence to Ching-Hsien Hsu.

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Xu, Q., Chang, V. & Hsu, CH. Event Study and Principal Component Analysis Based on Sentiment Analysis – A Combined Methodology to Study the Stock Market with an Empirical Study. Inf Syst Front 22, 1021–1037 (2020). https://doi.org/10.1007/s10796-020-10024-5

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