Market Predictability in the Digital Age: The Influence of Online Sentiment on Equity Price Movements

Abstract

In the digital era, online sentiment has emerged as a critical factor influencing financial markets, shaping investor behavior and asset price dynamics. This study investigates the relationship between online sentiment—derived from social media, news, and financial forums—and equity price movements across global markets. Using sentiment analysis techniques and econometric modeling, we quantify the predictive power of online sentiment for short-term and medium-term stock returns. Results indicate that positive sentiment correlates with upward price movements, while negative sentiment signals potential declines, highlighting the role of digital information in market predictability. The findings provide insights for investors, portfolio managers, and policymakers seeking to leverage digital signals for market strategies.