Can News Predict Markets? Olamide Ayodele Thinks Sentiment Can Help
September 20, 2024.
By Tolu Oke
Nigeria’s markets are in a phase where prices can move on interpretation as quickly as they move on cashflows. Investors are not only weighing earnings and dividends; they are pricing confidence—about policy direction, FX stability, inflation expectations, and the credibility of reforms. That makes the information environment unusually powerful: a shift in the tone of credible reporting, official statements, or corporate disclosures can change risk appetite before quarterly numbers confirm anything. It is exactly this “narrative risk” problem that Olamide “Lamal” Ayodele, a Nigerian-born financial analytics researcher, has been working on—building practical ways to measure how headlines shape investor expectations and to convert that measurement into disciplined portfolio decisions.
In a May 2024 study, Harnessing Sentiment for Alpha Generation, Ayodele and co-author Mehrdad Soltani examined whether sentiment extracted from financial news can be treated as a systematic investing signal, rather than a vague notion of market mood. Their work uses a finance-trained language model to score the tone of financial headlines so that news can be processed as structured data, not intuition. What matters for investors is the paper’s business-facing conclusion: the authors report that the sentiment-based approach can produce “significant alpha” and emphasize that the strategy is not only return-seeking but also risk-aware. Beyond performance claims, the study highlights resilience by evaluating drawdowns and stating that the sentiment portfolios’ drawdowns were “consistently lower” than the benchmark used for comparison—an outcome that speaks directly to how professional investors judge strategies in real life, especially in volatile markets.
Ayodele argues that the real value of sentiment analytics is not “trading headlines,” but enforcing discipline in a world where humans are overwhelmed by information. “Markets don’t just price fundamentals; they price interpretation,” he says. “If the information environment changes—if the tone of credible reporting shifts from confidence to concern—prices can adjust before fundamentals catch up. Measuring sentiment gives you a consistent way to detect that shift and manage risk earlier.” The point is highly relevant for Nigeria because market narratives here often cluster around identifiable regimes: policy communication, macro releases, and liquidity conditions can drive broad rotations across banks, consumer names, industrials, and infrastructure-linked firms. A systematic sentiment gauge can therefore function as a portfolio overlay—helping investors size risk exposure, adjust sector weights, and respond to deteriorating narrative conditions without relying on scattered headlines or emotional reactions.
The practicality question matters even more in Nigeria than in developed markets: liquidity is uneven, transaction costs can bite, and many managers cannot—or do not—run classic long–short structures. Ayodele’s research explicitly emphasizes feasibility and cost-awareness, noting that a more focused implementation can keep the approach practical under transaction-cost constraints. In Nigeria, this translates into realistic use cases that do not require complex market plumbing: a discretionary manager can use sentiment trends as confirmation signals for entries and exits; a quantitative manager can use sentiment as a factor tilt (overweight improving narratives, underweight deteriorating narratives); and a risk committee can use an aggregate market sentiment indicator to tighten limits when negative sentiment persists across the information ecosystem. For foreign and diaspora investors—often the most exposed to informational disadvantage—a credible Nigeria-focused sentiment index could also standardize interpretation of local signals, narrowing the gap between “news flow” and “actionable understanding.”
The applications extend beyond trading. A Nigeria sentiment index can strengthen investor relations for listed firms by showing how the market is interpreting disclosures in real time; it can help pension funds and insurers communicate risk posture with evidence rather than intuition; and it can even support market monitoring by highlighting where narrative shocks are concentrated and how quickly they spread. Ayodele frames the broader implication in institutional terms: “When investors can measure the information environment with discipline, they invest with more confidence. Confidence brings participation, participation brings liquidity, and liquidity lowers the cost of capital. Data tools can support that cycle.” In that sense, sentiment analytics is not a gimmick; it is part of the infrastructure Nigeria needs as its markets deepen—tools that help investors separate noise from signal, manage drawdowns when narratives break, and allocate capital with consistency through reform-driven cycles.
