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The impact of textual sentiment on sovereign bond yield spreads: evidence from the Eurozone crisis

The impact of textual sentiment on sovereign bond yield spreads: evidence from the Eurozone crisis
The impact of textual sentiment on sovereign bond yield spreads: evidence from the Eurozone crisis
This study examines the relation between textual sentiment, the concentration/volume of news, and sovereign bond yield spreads, specifically in Greece, Ireland, Italy, Portugal and Spain during the European sovereign debt crisis (January 2009 to December 2012). The results are consistent with the story that investors of sovereign bonds respond to rising negative sentiment accompanied by an increased concentration/volume of news. If the change of the interaction measures increases by 1 unit and other factors remain unchanged, the change of yield spreads would move upwards by approximately 18 to 32 basis points, putting downward pressure on prices. Negative sentiment and the number of news stories respectively and collectively help predict the widening of yield spreads. A higher negative sentiment level is strongly associated with more news stories being reported, suggesting that “no news is good news.” Overall, textual sentiment conveys potential pricing-relevant information over and above the traditionally identified factors.
textual sentiment, media pessimism, information supply, sovereign bond yield spreads, european sovereign debt crisis
1096-1879
215-248
Liu, Sha
738b1d80-5aa6-4750-868e-b4741657874f
Liu, Sha
738b1d80-5aa6-4750-868e-b4741657874f

Liu, Sha (2014) The impact of textual sentiment on sovereign bond yield spreads: evidence from the Eurozone crisis. Multinational Finance Journal, 18 (3/4), 215-248.

Record type: Article

Abstract

This study examines the relation between textual sentiment, the concentration/volume of news, and sovereign bond yield spreads, specifically in Greece, Ireland, Italy, Portugal and Spain during the European sovereign debt crisis (January 2009 to December 2012). The results are consistent with the story that investors of sovereign bonds respond to rising negative sentiment accompanied by an increased concentration/volume of news. If the change of the interaction measures increases by 1 unit and other factors remain unchanged, the change of yield spreads would move upwards by approximately 18 to 32 basis points, putting downward pressure on prices. Negative sentiment and the number of news stories respectively and collectively help predict the widening of yield spreads. A higher negative sentiment level is strongly associated with more news stories being reported, suggesting that “no news is good news.” Overall, textual sentiment conveys potential pricing-relevant information over and above the traditionally identified factors.

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More information

Published date: 31 December 2014
Venue - Dates: The Financial Management Association Annual Meeting, 2013, Chicago, United States, 2013-10-16 - 2013-10-19
Keywords: textual sentiment, media pessimism, information supply, sovereign bond yield spreads, european sovereign debt crisis
Organisations: Centre of Excellence for International Banking, Finance & Accounting

Identifiers

Local EPrints ID: 365558
URI: http://eprints.soton.ac.uk/id/eprint/365558
ISSN: 1096-1879
PURE UUID: 7b7ba1a7-9086-4547-8e11-b56e868ac080

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Date deposited: 10 Jun 2014 10:16
Last modified: 14 Mar 2024 16:57

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Contributors

Author: Sha Liu

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