Can AI Detect Tail Events? Stock Performance Around Tail Events During Different Sentiment Regimes

This study examines the dynamics of US stock-specific news sentiment relative to aggregate market sentiment, leveraging a dataset of 2.7 million news articles. Focusing on negative tail events among S&P 100 constituents from 2003 to 2021, we identify a significant association between firm-specific sentiment changes and subsequent one-month stock performance. Specifically, a positive news sentiment score during adverse events suggests the absence of fundamental issues and correlates with superior post-event returns. These findings support the development of a profitable reversal trading strategy and indicate a potential regime shift in market behavior.