The Hype Index: an NLP-driven Measure of Market News Attention

TL;DR

The paper presents the Hype Index, an NLP-based metric that quantifies media attention on large-cap stocks and sectors, aiding in market analysis and prediction.

Contribution

It introduces the Hype Index and its capitalization-adjusted version, applying NLP to financial news to measure media attention and market impact.

Findings

Hype Index correlates with stock volatility and returns

It effectively signals short-term market movements

The index shows robust empirical properties and trends

Abstract

This paper introduces the Hype Index as a novel metric to quantify media attention toward large-cap equities, leveraging advances in Natural Language Processing (NLP) for extracting predictive signals from financial news. Using the S&P 100 as the focus universe, we first construct a News Count-Based Hype Index, which measures relative media exposure by computing the share of news articles referencing each stock or sector. We then extend it to the Capitalization Adjusted Hype Index, adjusts for economic size by taking the ratio of a stock's or sector's media weight to its market capitalization weight within its industry or sector. We compute both versions of the Hype Index at the stock and sector levels, and evaluate them through multiple lenses: (1) their classification into different hype groups, (2) their associations with returns, volatility, and VIX index at various lags, (3) their signaling power for short-term market movements, and (4) their empirical properties including correlations, samplings, and trends. Our findings suggest that the Hype Index family provides a valuable set of tools for stock volatility analysis, market signaling, and NLP extensions in Finance.