CO-S-01-04

Residual Sentiment Factor, RSF

The Relative Sentiment Factor (RSF) measures the portion of sentiment momentum that price–volume dynamics cannot explain. By removing the predictable sentiment component from volume and returns, RSF isolates a cleaner signal of irrational or non-fundamental sentiment pressure.

Mathematically, RSF is derived from the following regression framework:

• Yₜ = Positive_ratioₜ − Negative_ratioₜ: sentiment momentum

• εₜ: residual sentiment not explained by volume or returns (RSF core value)

1. Computation Logic & Formulas

1. Regression Modeling

• Target Variable (Y): Sentiment momentum (Positive emotion ratio - Negative emotion ratio)

• Explanatory Variables (X): Transaction Volume (Volume), Logarithmic Return (Ret_log)

A rolling OLS regression is performed over window W_reg​:

Obtained parameter estimation and rolling fitting goodness of fit .

1. Residual Calculation

2. Indicator Explanation

Residual represents the part of emotional momentum that cannot be explained by volume and price, i.e., the market's "abnormal emotion".

Residual Interval	Sentiment State	Market Implication
Residual > 0	Abnormally Positive / Overheated	Investor sentiment exceeds what volume–price fundamentals can justify; potential short-term bubble risk.
Residual ≈ 0	Neutral State	Sentiment aligns with volume–price behavior; no significant abnormality.
Residual < 0	Abnormally Negative / Fearful	Market is excessively pessimistic; possible mean-reversion or rebound potential.

3. Application Guidelines

1. Sentiment Resonance & Overheating Phase

When the residual is positive and price momentum is also rising, it indicates that sentiment and market conditions are "resonating" to amplify the effect. Although this phase may bring short-term gains, the risk accumulates quickly, and one should be wary of a potential correction.

2. Divergence & Reversal Signals

When the residual is significantly negative but the price has not yet fallen, it indicates that sentiment is "too pessimistic," and there may be an opportunity for an expected reversal. It can be combined with price and volume signals for contrarian positioning.

3. Neutral Range

When the residual fluctuation is relatively small or close to zero, it indicates that the emotional fluctuation is consistent with the logic of quantity and price, and the market operation is relatively rational, with no significant trading opportunities.

Official Example

• Objective & Features

Notes:

This is the baseline configuration without any feature enhancements.

To improve robustness, you may apply feature augmentation—for example, adding past n periods of volume and return features to capture sentiment inertia and lag effects.

• Recommended Parameters

Project	Meaning	Recommended Value
Output Variables	RSF (Residual Sentiment Factor)	Rolling OLS residual
Rolling Regression Window (W_{reg})	Parameter Estimation Window Period	96 (≈ one trading day, 15-min × 96)
Feature Enhancement	Using past n periods of price and volume characteristics	n = 1~5

• Sample Description