At Acuity Research Lab, in collaboration with Barcelona Tech (CS Dept.), we continuously seek for new ways to extract sentiment information from news and predict future behavior of assets returns. In this note we report our recent study and implementation of a novel methodology for sentiment analysis introduced by Zheng Tracy Ke, Bryan Kelly and Dacheng Xiu in their 2019 article titled “Predicting Returns with Text Data” [KKX]. In their paper, the authors present a supervised topic model, which they called "SESTM" (Sentiment Extraction via Screening and Topic Modeling), that uses correlation screening to create sentiment scores for Dow Jones Newswires financial news articles, customised to the prediction of financial returns.
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