The time-varying nature of social media sentiments in modeling stock returns

The broad aim of this paper is to answer the following query: is the relationship between social media sentiments and stock returns time-varying? To provide a satisfactory response, a novel methodology-a symbiosis of Bayesian Dynamic Linear Models and Seemingly Unrelated Regressions -is introduced. Two sets of Dow Jones Industrial Average stock data and corresponding social media data from Yahoo! Finance stock message boards are used in a comprehensive empirical study. Some key findings are: (a) Affirmative response to the above question; (b) Models with only social media sentiments and market returns perform at least as well as models that include Fama-French and Momentum factors; (c) There are significant correlations between stocks, ranging from  −0.8 to 0.6 in both data sets.