News and narratives in financial systems: exploiting big data for systemic risk assessment

Rickard Nyman (), Sujit Kapadia, David Tuckett (), David Gregory (), Paul Ormerod () and Robert Smith ()
Additional contact information
Rickard Nyman: University College London, Centre for the Study of Decision-Making Uncertainty, Postal: University College London, Centre for the Study of Decision-Making Uncertainty
David Tuckett: University College London, Centre for the Study of Decision-Making Uncertainty, Postal: University College London, Centre for the Study of Decision-Making Uncertainty
David Gregory: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Robert Smith: University College London, Centre for the Study of Decision-Making Uncertainty

No 704, Bank of England working papers from Bank of England

Abstract: This paper applies algorithmic analysis to large amounts of financial market text-based data to assess how narratives and sentiment play a role in driving developments in the financial system. We find that changes in the emotional content in market narratives are highly correlated across data sources. They show clearly the formation (and subsequent collapse) of very high levels of sentiment — high excitement relative to anxiety — prior to the global financial crisis. Our metrics also have predictive power for other commonly used measures of sentiment and volatility and appear to influence economic and financial variables. And we develop a new methodology that attempts to capture the emergence of narrative topic consensus which gives an intuitive representation of increasing homogeneity of beliefs prior to the crisis. With increasing consensus around narratives high in excitement and lacking anxiety likely to be an important warning sign of impending financial system distress, the quantitative metrics we develop may complement other indicators and analysis in helping to gauge systemic risk.

Keywords: Systemic risk; text mining; big data; sentiment; uncertainty; narratives; forecasting; early warning indicators (search for similar items in EconPapers)
JEL-codes: C53 D83 E32 G01 G17 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2018-01-05
New Economics Papers: this item is included in nep-big, nep-cfn, nep-ifn, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... 5A330EC2A5ABF7D34344 Full text (application/pdf)

Related works:
Journal Article: News and narratives in financial systems: Exploiting big data for systemic risk assessment (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0704

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().