Hypothesis
Sentiment extracted from news headlines would carry predictive power for stock market direction and returns that could be exploited.
What failed
Across about 1.86 million headlines, explicit sentiment scores, even split into firm-specific and non-firm-specific parts, lacked robust predictive power; neither FinBERT sentiment, past returns nor implied volatility gave a consistently exploitable edge. Only weekend and holiday sentiment carried a modest signal.
Broken assumption
Public news sentiment contains return-relevant information that prices have not already absorbed.
Why
The authors note most news content is neutral or objective, and that markets appear to anticipate rather than react; they read the results as support for weak- and semi-strong-form market efficiency.
From the published paper: Davidović et al. Journal of risk and financial management, 2025. ↗CC BY