Home > Research > Publications & Outputs > Popular Music, Sentiment, and Noise Trading

Electronic data

View graph of relations

Popular Music, Sentiment, and Noise Trading

Research output: Working paper

Publication date31/10/2019
Place of PublicationLancaster
PublisherLancaster University, Department of Economics
<mark>Original language</mark>English

Publication series

NameEconomics Working Papers Series


We construct a sentiment indicator as the first principal component of thirteen emotion metrics derived from the lyrics and composition of music-chart singles. This indicator performs well, dominating the Michigan Index of Consumer Sentiment and bettering the Baker-Wurgler index in long-horizon regression tests as well as in out-of-sample forecasting tests. The music-sentiment indicator captures both signal and noise. The part associated with fundamentals predicts more distant market returns positively. The second part is orthogonal to fundamentals, and predicts one-month-ahead market returns negatively. This is evidence of noise trading explained by the emotive content of popular music.