By Mr. Eric Tham, Senior Lecturer & Consultant, Analytics & Intelligent Systems Practice

1. Sentiment Analysis in Finance
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Eric Tham, NUS-ISS
13 July 2018

2. Content
• Introduction
• Sentiment is psychology
• Demonstration in the Chinese equity markets
• Conclusion
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3. A little about myself
• Senior Lecturer in AI and analytics in NUS-ISS
• 16 years of experience in the financial industry spanning risk
management, quantitative analysis and data science.
• 2 masters degree and completing Phd in Finance
• Previous experience in building sentiment indices and trading
strategies for the China equities in start-up in GZ
• Teaches Blockchain, sentiment analysis and predictive analytics at
NUS
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4. Previous work on Sentiment Analysis
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5. Introduction to Sentiment Analysis
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6. Alternative Data
• New form of alternative data used in finance for trading
use.
• Traditionally, traders use technical analysis, news, prices,
economic data to trade the markets.
• Alternative data:
• news and social media textual data
• Satellite images, e-transactions, video etc.
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7. Sentiment Analysis
• Two different sources <-> Different transmission impacts on financial
markets
• Main news media (Reuters, WSJ, CNBC, CNA )
• Peer to peer sharing
• Twitter, Facebook, Weixin)
• Specialised investment sites: SeekingAlpha and eToro, iMaibo in China
• Big Data: wisdom of the crowd
• Social media posts ‘peek’ into investor thoughts and beliefs
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8. Natural Language Processing
• Systematically and computationally retrieves the public beliefs
• Uses supervised learning – a reference bible that has positive or
negative sentiment labelled
• Use it to train a ‘A.I. model’ subsequently used to label other posts
• The label peeks into what people are talking about the stocks, and
also influences what others think.
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9. Simple Illustration of NLP
• Systematically and computationally aggregates the public beliefs
Some manual examples
• https://seekingalpha.com/article/4186203-omega-healthcare-storm
Positive or negative sentiment?
• https://www.marketwatch.com/story/celgene-acceleron-shares-rise-on-blood-disorder-drug-
study-2018-07-09?mod=BreakingNewsMain&link=sfmw_tw
Positive or negative sentiment?
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10. Sentiment Indices
• Aggregates across all posts and social media to obtain indices.
Example (built by author)
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11. Sentiment is psychology
Describes underlying concepts of sentiment in finance
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12. Behavioural finance
• Basis of how you actually use sentiment correctly?
• The market is about psychology. Therein, why sentiment works.
• Over-reaction to attention-seeking news.
• Under-reaction to important news due to transmission mechanism
• Investor disagreement in market.
• Do back-testing on results for best trading strategy in the markets.
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13. Sentiment trading Strategies
• Mean reversion :
• out of over-reaction?
• Or under-reaction?
• Momentum
• Irrational exuberance?
• How do you detect momentum from sentiment?
• Different in different markets
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14. Demonstration for China equities
Section description
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15. Trading Strategies: Sentiment HeatMap
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What do the colors and sizes
indicate?

16. Some references
• Trading on Sentiment
• Handbook of News Analytics in Finance
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17. Some references
• Author’s previous work
• http://forport.tzmaibo.com/docs/imaibowhite_2.pdf
• http://forport.tzmaibo.com/docs/imaibowhite_1.pdf
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18. Conclusion
• Markets about psychology.
• Sentiment from textual data a Big Data way to perceive
this market psychology.
• This sentiment can be used for trading strategies but
needs systematic back-testing and a good
understanding of the markets still
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19. Thank You!
isstyc@nus.edu.sg
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