on constructing market-neutral strategies taking long and short positions in the top- and
bottom-ranked industries, respectively. Being able to successfully rank industries based
on sentiment should enhance the performance of a strategy, since more targeted
investments can be made towards expected outperformers and underperformers during
periods with long and short exposures, respectively.136 Quantifying news: Alternative metricsTable 5.2.Yearly annualized return covering the out-of-sample period May
2005 through December 2009 for strategies based on the Market-Level
Sentiment Index (column 2)withan Event Novelty Score filter (ENS=100),
the Market-Level Sentiment Index (column 3)withoutan Event Novelty Score
filter, and the 1-month price momentum strategy based on the S&P 500
(column 4)Sentiment index Sentiment index Price momentum
(ENS=100) (1 month)
(%) (%) (%)2005 13.05 13.05 20.52
2006 9.20 9.09 7.68
2007 22.99 10.91 7.20
2008 58.32 5.75 13.68
2009 42.85 42.85 16.80Table 5.1.Performance statistics covering the out-of-sample period May 2005 through December
2009 for the strategies based on the Market-Level Sentiment Index (column 3)withan Event
Novelty Score filter (ENS¼100), the Market-Level Sentiment Index (column 4)withoutan Event
Novelty Score filter, and the 1-month price momentum strategy based on the S&P 500 (column 5).
Pre-October and Post-October refer to the market high in October 2007
Sentiment index Sentiment index Price momentum
(ENS=100) (1 month)Information ratio Total 1.75 0.76 0.40
Information ratio Pre-October 1.02 0.35 0.18
Information ratio Post-October 2.47 1.05 0.55
Annual return Total 26.50% 12.67% 6.80%
Annual return Pre-October 7.69% 2.74% 1.40%
Annual return Post-October 46.70% 23.33% 12.60%
Annual volatility Total 15.16% 16.61% 16.90%
Annual volatility Pre-October 7.56% 7.85% 7.88%
Annual volatility Post-October 18.88% 22.32% 23.05%
Hit ratio Total 69.64% 62.50% 55.36%
Hit ratio Pre-October 62.07% 58.62% 48.28%
Hit ratio Post-October 77.78% 66.67% 62.96%