Introducing The RavenPack Sentiment Index

RavenPack - Dec. 1, 2011
To capture the overall sentiment of the market, we construct a news sentiment index based on the Event Sentiment Score (ESS) developed by RavenPack. The index is constructed using a simple, intuitive, and robust approach capturing the sentiment momentum on the US market over a three month period. From January 2000 to September 2011, the contemporaneous correlation between the RavenPack Sentiment Index and the S&P 500 Index is 79%, with an average correlation during bear markets of more than 90%. We not only find a statistically significant causal relationship between market sentiment and market returns, we also find economic significance of the model signals with out-of-sample annualized returns and Information Ratios as high as 17.5% and 0.81, respectively.