The Impact of Sentiment Indices on the Stock Exchange—The Connections between Quantitative Sentiment Indicators, Technical Analysis, and Stock Market

Abstract

The stock market represents one of the most complex mechanisms in the financial world. It can be seen as a living being with complex ways to enact, interact, evolve, defend, and respond to various stimuli. Technical analysis is one of the most complex techniques based on financial data’s graphical aspects. News sentiment indices are very complex and highlight another important part of behavioral finance. In this study, we propose an integrated approach in order to determine the correlation between news sentiment indices, the stock market, and technical analysis. The research methodology focuses on the stock market’s practical and quantitative aspects. In this sense, we have used the graphical representation of technical analysis and econometric modeling techniques such as VAR and Bayesian VAR. The results of the empirical modeling techniques and analysis reveal some important connections between the stock market and news sentiment indices on the US stock market. The conclusions of this study highlight a strong connection between news sentiment indices, technical analysis, and the stock market which suggests that the behavioral finance aspect is a very important aspect in the analysis of the stock market.

Keywords

• technical analysis
• sentiment indices
• stock market
• quantitative approach
• behavioral finance