Who's behind the wheel? The role of social and media news in driving the stock-bond correlation

This study investigates the impact of both social and news sentiments indices on the dynamic stock-bond correlation across wavelet-based time-scales over the period 1998-2016. Our results show that the news sentiments namely unemployment, tsunami and sanctions exhibit significant effects during expansion at the shortest time-scale of [2-4] days. These predictors remain significant with reverse signs during recession on the long investment horizon. Yet, the predictability of social media sentiments differs from that of news sentiments with the pattern of reversal in sign also presents for some proxies including windstorm and investment flows. Statistically, our further analysis confirmed the predictability of the sentiments out-of-sample. Excluding the news and social media sentiment effects has also resulted in minimizing the value-at-risk of the (40/60) stock/bond portfolios the most at the investment horizon of [32-64] days during recessions. Our results remain the same after performing some robustness checks.