RT Journal Article
SR Electronic
T1 Applying News Sentiment for Optimizing Strategic Asset Allocations
JF The Journal of Investing
FD Institutional Investor Journals
SP joi.2021.1.203
DO 10.3905/joi.2021.1.203
A1 Philippe Rohner
A1 Matthias W. Uhl
YR 2021
UL https://pm-research.com/content/early/2021/09/29/joi.2021.1.203.abstract
AB In this article, the authors show that it is possible to enhance traditional Black and Litterman strategic asset allocation (SAA) models with a behavioral approach based on news sentiment. In an out-of-sample backtest over 10 years, the news sentiment–based SAA outperforms the benchmark SAA by 0.5% a year with less risk and a 20% higher Sharpe ratio. The news sentiment data are also statistically different from price momentum measures.Key Findings▪ The authors enhance traditional Black and Litterman strategic asset allocation (SAA) models with a behavioral approach based on news sentiment.▪ Sharpe ratios of such portfolios are enhanced by up to 20% compared with more traditional SAAs.▪ The authors demonstrate that news sentiment is statistically different from price momentum measures.