The Korean News Financial Sentiment Index(KNFSI) and Its Relationship with the KOSPI 200

The stock market is closely associated with news. However, since the interpretation of news can be subjective, and conventional stock market analysis primarily relies on structured data and quantitative variables, the incorporation of news information remains limited. This paper introduces the Korean News Financial Sentiment Index(KNFSI), a new financial sentiment index tailored to the Korean market, and investigates its relationship with KOSPI 200 returns. To create this index, U.S.-based financial keywords were adapted to reflect the Korean market, and KR-FinBERT, a sentiment analysis model for Korean financial texts, was applied to news headlines from January 1 to December 31, 2023. The KNFSI consists of the composite index and two sub-indices: KNFSI⁻(reflecting negative sentiment) and KNFSI⁺ (reflecting positive sentiment). Empirical results show that KNFSI is positively correlated with KOSPI 200 returns, with KNFSI⁻ showing strong explanatory power during market downturns. In addition, both simple and multiple linear regression models confirm that KNFSIt and KNFSIt⁻ are significant explanatory variables for stock returns.