Discussion paper

DP15756 Music Sentiment and Stock Returns Around the World

This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events, nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors and weather conditions. We find that music sentiment is positively correlated with same-week market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when short-sale constraints limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility.


Edmans, A, A Fernandez, A Garel and I Indriawan (2021), ‘DP15756 Music Sentiment and Stock Returns Around the World‘, CEPR Discussion Paper No. 15756. CEPR Press, Paris & London. https://cepr.org/publications/dp15756