Sentiment as Early Warning: A Systemic Risk Index for the Philippines

Lizelle Ann Cruz

MPRA Paper from University Library of Munich, Germany

Abstract: Systemic risk remains a key concern for financial authorities, especially in emerging economies where traditional, low‑frequency balance sheet indicators often lag changing conditions. This study develops a high‑frequency Systemic Risk Sentiment Index (SRSI) for the Philippines using news headlines from 2011–2025 and an ensemble of domain‑specific financial sentiment models. Results show that negative sentiment is mainly driven by external‑sector developments, market volatility, and equity‑related news, with surges aligning with global and domestic stress episodes. Empirical tests indicate only modest predictive power for domestic equity returns, and misclassifications highlight challenges in capturing nuances of Philippine financial reporting. Overall, the SRSI is best viewed as a responsive, real‑time barometer that complements conventional systemic risk measures.

Keywords: Systemic Risk; Early Warning Indicators; Sentiment Analysis; Machine Learning; Large Language Model (search for similar items in EconPapers)
JEL-codes: C43 C55 E44 G14 (search for similar items in EconPapers)
Date: 2026-03-02, Revised 2026-04-06
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Published in Journal of Risk and Financial Management 5.19(2026): pp. 1-30

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:128944

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