Sentiment Analysis of Financial News on Bloomberg and its Impact on The Euro Stoxx 50

In today’s fast-paced financial markets, where investors are flooded with huge amounts of news and data, understanding the role of market sentiment has become increasingly important. This work investigates the impact of financial news sentiment on the daily returns of the Euro Stoxx 50 index, covering the period from January 2022 to March 2024. By examining whether sentiment extracted from Bloomberg articles can predict stock returns, the study aims to shed light on how investor psychology, driven by news, interacts with market performance, especially when accounting for market volatility (VIX) and lagged returns. To explore this relationship, sentiment scores were calculated using the Loughran-McDonald Lexicon and combined with stock price data to conduct panel regressions. Both fixed effects and random effects models were considered, with the Hausman test used to select the appropriate model. Additionally, OLS regressions for each year were applied to further understand the dynamics between sentiment and returns over time. The results reveal that in 2022, sentiment had a significant positive effect on returns, suggesting that investor sentiment played a key role during periods of heightened market uncertainty. The findings indicate that while sentiment can affect market performance, its impact is largely contingent on volatility levels and broader market conditions. This study contributes to the growing body of literature on the interaction between sentiment and financial markets, emphasizing the variable nature of sentiment’s influence across different market environments.