The Scramble for Tech
The flood of capital into ‘innovation’ ETFs has highlighted investor mania for all things tech. This is none more so than for Ark Investment Management ETFs1, focused on innovation, genomics, fintech, autonomous tech and the next generation internet.
It is no surprise, then, that assets of Ark’s ETFs have soared to about USD50 billion from USD3.6 billion a year ago (Figure 1). One of these ETFs – the ARK Innovation ETF (‘ARKK’) – has added more than USD4 billion this year alone (Figure 2).
This combination of asset growth, strong past performance and outsized holdings in high-growth companies is an important data point to monitor, for now.
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Source: Bloomberg; as of 4 February 2021.
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Source: Bloomberg; as of 4 February 2021.
How Does News Sentiment Flow through Financial Networks?
“Lehman files for bankruptcy; Merrill is sold.”2 “Banking Crisis: Lehman Brothers files for bankruptcy protection.”3
Remember waking up to headlines shouting about Lehman Brothers going bust in 2008? How does news sentiment towards one company indicate its own market performance? Can news headlines be associated with a broader movement on the sentiment and performance of other companies from the same or even different sectors?
In collaboration with researchers at the Oxford-Man Institute for Quantitative Finance at the University of Oxford, we applied natural language processing (‘NLP’) techniques to understand news sentiment of 87 companies among the most reported on Reuters for a period of seven years from 2007. We then investigated the propagation of such sentiment in company networks and evaluated the associated market movements in terms of stock price and volatility.
Our results suggest that, in certain sectors, strong media sentiment towards one company may indicate a significant change in media sentiment towards related companies measured as neighbours in a financial network constructed from news co-occurrence. For example, we observed that banks in the US (Lehman Brothers, JPMorgan and Goldman Sachs)4 experienced strong negative sentiment around the financial crisis in September 2008, which indicates that those US banks were significantly affected in the crisis. However, the sentiment of Canadian banks did not suffer as much from the financial crisis, which is in line with the perception at the time.
Furthermore, we found that there exists a weak but statistically significant association between strong media sentiment and abnormal market return as well as volatility. Such an association is more significant at the level of individual companies, but nevertheless remains visible at the level of sectors or groups of companies.
The detailed analysis can be found here.
With contribution from: Dan Taylor (Man Numeric, CIO), Slavi Marinov (Man AHL, Head of Machine Learning) and Stefan Zohren (Oxford-Man Institute, Senior Quant).
1. The organisations and/or financial instruments mentioned are for reference purposes only. The content of this material should not be construed as a recommendation for their purchase or sale.
2. Source: New York Times; 14 September, 2008.
3. Source: The Guardian; 15 September, 2008.
4. The organisations and/or financial instruments mentioned are for reference purposes only. The content of this material should not be construed as a recommendation for their purchase or sale.
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