Aggregate X-Sentiment and ETF Returns

The paper extends firm-specific evidence to the aggregate level by examining whether well-diversified portfolios respond to sentiment extracted from posts on the social media platform – X. Firm-specific X sentiment could be related to the covariance structure of returns, or it could be a priced characteristic. To distinguish between these two hypotheses, we construct two aggregate X-sentiment measures: an X-sentiment factor mimicking portfolio and an aggregate excess X-sentiment index of all stocks included in the S&P 500 index. Our evidence indicates that the factor mimicking portfolio is related to the covariance structure of returns through its ability to mimic a mispricing factor.