Applying News Sentiment for Optimizing Strategic Asset Allocations

Abstract

In this article, the authors show that it is possible to enhance traditional Black and Litterman strategic asset allocation (SAA) models with a behavioral approach based on news sentiment. In an out-of-sample backtest over 10 years, the news sentiment–based SAA outperforms the benchmark SAA by 0.5% a year with less risk and a 20% higher Sharpe ratio. The news sentiment data are also statistically different from price momentum measures.