Portfolio Optimization using Investor Sentiment
Published in 3rd International Conference on Smart Finance, 2018
Recommended citation: HU, W. & ZHAO, J.L. (2018). "Portfolio Optimization using Investor Sentiment." 3rd International Conference on Smart Finance (ICSF2018)
ABSTRACT: Investor sentiment in financial market has been proved to have a significant cross-sectional relation with expected stock returns. Traditional mean-variance portfolio model assumes that all the investors are well-informed and rational. However, the existence of sentiment traders and their impact on market should not be neglected. In this study, we propose a new method and experimental design for portfolio optimization using investor sentiment in multiple stages. We also demonstrate the mathematical model of sentiment-adjusted portfolio to examine the impact of investor sentiment. For the estimation issue, we adapt two machine learning methods for portfolio optimization: regularization and cross-validation. In the future work, we plan to carry out an extensive empirical investigation of sentiment-adjusted portfolio against mean-variance portfolio and Online Moving Average Reversion strategy.