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"Words that Matter: The Impact of Negative Words on News Sentiment and Stock Market Index"
This study analyzes the relationship between Google Trends search volume for "happiness" (Happiness Search Exposure, HSE) and stock market returns in the Korean stock market.

1. Research Objectives

• Investigate whether HSE serves as an asset pricing factor rather than just an investor sentiment indicator.

• Examine whether HSE predicts future stock returns, particularly in large-cap and value stocks.

• Assess whether an HSE-based investment strategy can enhance institutional investor performance.

2. Research Methodology

• Collected 45,723 Korean economic news articles from January 4, 1990, to December 31, 2021.

• Gathered Google Trends data for the search term "happiness."

• Estimated expected returns using the Fama-French 5-Factor Model and calculated abnormal returns.

• Conducted time-series linear regression analysis to examine the relationship between HSE and the KOSPI 200 index.

• Controlled for variables such as firm size and book-to-market ratio (BE/ME) to validate findings.

3. Key Findings

HSE predicts future returns in large-cap value stocks:

• Higher HSE is linked to higher future returns in large-cap value stocks.

• Suggests that HSE reflects a firm's societal utility rather than just financial fundamentals.

• Firms associated with social value tend to attract positive investor sentiment, leading to stock price appreciation.

HSE as a risk factor:

• Unlike traditional sentiment indicators, HSE can be interpreted as a rational asset pricing factor.

• Investors tend to favor companies that provide societal utility, and HSE captures this preference.

Predictive power remains after controlling for size and value factors:

• Even after accounting for size and BE/ME, HSE retains its ability to predict stock returns.

• This suggests HSE is not just a reflection of known market anomalies but contains unique information.

Nonlinear relationship between HSE and firm size:

• Stocks with high or low HSE tend to have lower market value.

• Stocks with moderate HSE tend to have higher market value.

• Indicates that HSE does not have a simple linear correlation with firm size.

Conclusion

This study demonstrates that Google Trends search volume for "happiness" can function as both a sentiment indicator and an asset pricing factor. HSE effectively predicts returns in large-cap value stocks, suggesting that institutional investors may benefit from an HSE-based strategy. Additionally, the findings highlight that well-chosen Google Trends keywords can be linked to market risk and stock price movements.

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