Document Type

Student Research Paper

Date

Spring 2018

Academic Department

Business

Faculty Advisor(s)

Dr. Emma Neuhauser

Abstract

Fama-French’s Three-Factor Model stands as one of the overarching financial models in investing. This model details the risk and return attributed to stocks, based on capitalization, book value, and market return. Since then, a number of financial theorists have proposed amendments to the model, finding other factors with correlation to stock returns. One in particular was momentum, proposed by Mark Carhart to enhance the model further. From this Four-Factor Model, the question remains whether or not more factors can be added to better explain excess return.

The goal of this study is to find a correlation between Social Velocity ranking and stock returns over a trading day. If the correlation is statistically significant, this could prove to be an added factor in a new, more telling five-factor model. Using the Bloomberg Social Velocity Monitor, a one-month study was conducted, with the price and Social Velocity recorded for the top 30 equities in the monitor each trading day. Once these were recorded, a final price was found at either the end of the trading day or the end of the next trading day, depending one when the original data was collected.

Our study found statistical significance in correlation between Social Velocity ranking and stock return. In using a regression model, we were able to conclude that sentiment toward a company can in fact affect a stock price over a trading day. In turn, this factor could indeed be a plausible addition to the model.

Notes

Senior thesis.

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