Do Newspaper Articles Predict Aggregate Stock Returns?

We analyze whether newspaper content can predict aggregate future stock returns. Our study is based on articles published in the Handelsblatt, a leading German financial newspaper, from July 1989 to March 2011. We summarize newspaper content in a systematic way by constructing word-count indices for a large number of words. Word-count indices are instantly available and potentially valuable financial indicators. Our main finding is that newspaper articles have provided information valuable for predicting future DAX returns in and out of sample. We find evidence that the predictive power of newspaper content has increased over time, particularly since 2000. Our results suggest that a cluster analysis approach increases the predictive power of newspaper articles substantially.