More Than a Feeling: Researching the Impact of Sentiment

The Christmas shopping season had market watchers and retailers anxiously gauging consumer sentiment as they rolled out sales.

The role of sentiment in the retail market is fairly well understood — when times are good, you’ll shop ’til you drop. But what about currency exchange markets? A Stevens researcher is measuring sentiment to observe how it may influence the foreign exchange market.

Dr. Eleni Gousgounis, an assistant professor in the Howe School, is working with Thomson Reuters to track sentiment alongside market data, in hope of explaining exchange rate behavior.

It’s a tricky task, for two reasons: The study of sentiment is still an emerging area, and what data do exist tend to be solely focused on the United States.

Gousgounis said the data she’s using come from MarketPsych, which was acquired by Thomson Reuters in June 2012. MarketPsych, she said, “uses data mining techniques on online news articles and social media to create sentiment indices, which cover a wide range of countries particularly in places like Brazil, Turkey, Russia and Europe.”

“The indices include factors such as emotions, like fear and joy, (and) macroeconomic themes, like fiscal policy and monetary policy,” said Richard Peterson, of MarketPsych.

Gousgounis hopes her research can lend insight into what’s known as the forward premium puzzle — the fact that, despite the efficiency of the foreign exchange market, high-interest-rate countries tend to offer superior returns compared to currencies with lower interest rates.

“This could indicate that investor psychology plays a significant role in exchange rate fluctuations,” she said. “The question we want to address is whether we can measure sentiment and how sentiment affects foreign exchange markets.”

Understanding the Forward Premium Puzzle with Novel Sentiment Indices from Ian MacGillivray on Vimeo.

Sentiment is hardly a new arena for researchers at Stevens. Howe professors such as Germán Creamer, Jeffrey Nickerson and Yasuaki Sakamoto also are making inroads in this area. Among the areas studied by Stevens researchers: the impact of online review sentiment and sales, how social networks like Twitter spread and impact sentiment, and sentiment analyses of European equity markets.

The results of Gousgounis’ research so far are preliminary, but encouraging, she said — as is the reaction she’s gotten from Thomson Reuters on the research. Ian MacGillivray, a research scientist at Thomson Reuters, said his company has seen the value of working with Howe.

“Our recent collaboration with the Stevens Institute of Technology has not only allowed us to further our academic research interests, but further, to provide an immediate value to our customers,” MacGillivray said.