A Tale of Two Sentiment Scales: Disentangling Short-Run and Long-Run Components in Multivariate Sentiment Dynamics

  title={A Tale of Two Sentiment Scales: Disentangling Short-Run and Long-Run Components in Multivariate Sentiment Dynamics},
  author={Danilo Vassallo and Giacomo Bormetti and Fabrizio Lillo},
  journal={Econometric Modeling: Capital Markets - Portfolio Theory eJournal},
  • D. Vassallo, G. Bormetti, F. Lillo
  • Published 3 October 2019
  • Computer Science, Economics, Mathematics
  • Econometric Modeling: Capital Markets - Portfolio Theory eJournal
We propose a novel approach to sentiment data filtering for a portfolio of assets. In our framework, a dynamic factor model drives the evolution of the observed sentiment and allows to identify two distinct components: a long-term component, modeled as a random walk, and a short-term component driven by a stationary VAR(1) process. Our model encompasses alternative approaches available in literature and can be readily estimated by means of Kalman filtering and expectation maximization. This… Expand
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