A Framework for the Construction of a Sentiment-Driven Performance Index: The Case of DAX40

TL;DR

This paper introduces a sentiment-driven performance index for the DAX40, leveraging news sentiment analysis to react swiftly to market changes and outperform traditional indices over six years.

Contribution

The paper presents a novel framework for constructing a sentiment-based index that responds more quickly to news sentiment than existing methods.

Findings

Sentiment index achieved 7.51% annualized return over 6 years.

Index outperformed the traditional DAX40 index, which had 2.13% returns.

The framework effectively incorporates multilingual news sentiment analysis.

Abstract

We extract the sentiment from german and english news articles on companies in the DAX40 stock market index and use it to create a sentiment-powered pendant. Comparing it to existing products which adjust their weights at pre-defined dates once per month, we show that our index is able to react more swiftly to sentiment information mined from online news. Over the nearly 6 years we considered, the sentiment index manages to create an annualized return of 7.51% compared to the 2.13% of the DAX40, while taking transaction costs into account. In this work, we present the framework we employed to develop this sentiment index.