Who moved the market?: Analyzing the role of central bank speeches

Abstract

We quantify the sentiment from central bank speeches of five leading developed nations (US, UK, Japan, France, and Germany) and analyze their role in explaining the return of stock market indices for the respective nations. In this study we improve upon existing sentiment quantification techniques by introducing two innovations: (i) by introducing the sentence as the unit of analysis, and (ii) by introducing "valence shifters", which assign appropriate weights to adjectives and adverbs. We demonstrate that our modified sentiment extractor is a more effective explanatory variable as compared to both direct measures (Consumer Confidence Indices) as well as indirect measures (Baker and Wurgler Index).