Stress index strategy enhanced with financial news sentiment analysis for the equity markets

arXiv:2404.00012v1 Announce Type: cross
Abstract: This paper introduces a new risk-on risk-off strategy for the stock market, which combines a financial stress indicator with a sentiment analysis done by ChatGPT reading and interpreting Bloomberg daily market summaries. Forecasts of market stress derived from volatility and credit spreads are enhanced when combined with the financial news sentiment derived from GPT-4. As a result, the strategy shows improved performance, evidenced by higher Sharpe ratio and reduced maximum drawdowns. The improved performance is …

abstract analysis arxiv bloomberg chatgpt credit cs.ai cs.cl daily equity financial index market markets paper q-fin.rm q-fin.st reading risk sentiment sentiment analysis stock strategy stress type