Financial sentiment measures are widely used in empirical finance, but it remains unclear whether general-purpose large language models (LLMs) improve on existing finance-specific methods. This paper evaluates twelve sentiment models, including dictionary-based methods, finance-specific transformers, and open-source LLMs, using two criteria: linguistic validity and economic validity.
We find that general-purpose LLMs achieve classification performance comparable to finance-specific transformer models without task-specific fine-tuning. However, higher classification accuracy does not translate into stronger economic relationships. Several models produce sentiment measures that are significantly associated with earnings surprises, but none is significantly associated with next-day stock returns. Model performance is strongest for announcements with large earnings beats or misses and substantially weaker for announcements with more moderate earnings surprises.
These findings suggest that financial sentiment captures information about firms' economic performance but has limited ability to explain short-run market reactions.