The sentiment-size nexus: how financial news drives forecasting power across market caps

This study investigates the relationship between the forecasting power of web-based financial news sentiments and market capitalisation by analysing large, mid, and small-cap Indian stocks at both the index and sectoral levels. The analysis is further extended to two emerging Asian economies, Malaysia, and Vietnam. Given the dominant contribution of the finance sector, the study analyses the impact of financial news sentiments within the financial sector across each market cap. For this, 1,54,448 news headlines are extracted from an online news website, where financial news is identified using a TFIDF-GRU model and a keyword search with 187 financial terms. Sentiments are computed using a hybrid Doc2Vec-TFIDF feature extraction technique and an SVM classifier. The study employs a hybrid BiLSTM-GRU model incorporating web-based financial news sentiments alongside technical and macroeconomic indicators such as 10-year bond yield, exchange rate, gold price, crude oil price, and S&P500 closing price. Findings reveal that the forecasting power of web-based financial news sentiments varies significantly with market cap, with a strong impact on large-cap and mid-cap stocks. The study holds significant economic and policy implications, offering actionable insights for stakeholders across financial markets, regulatory bodies, and government.