Text Spillover: Measuring connectedness of financial institutions based on news text data

Konstantin Klaucke

The North American Journal of Economics and Finance, 2025, vol. 75, issue PA

Abstract: The interconnectedness of financial institutions can facilitate the contagion of financial crises and poses significant risks to financial stability. While well-established econometric spillover measures exist, they are usually based on numerical data, which may not always be available or timely. This paper explores the feasibility of using text data analysis as an alternative measure of interconnectedness between financial institutions. A novel news-based spillover measure is constructed and applied to a system of five banks, using an up-to-date dataset of nearly 47,000 news articles. The results of this text spillover index are compared to the Diebold-Yilmaz spillover index for validation. The findings indicate that text data analysis can provide valuable insight into the interconnectedness of financial institutions and substantiate the underlying hypothesis that the co-occurrence of actors in news articles allows direct conclusions about their connectedness. This enables new types of analysis and extends spillover measures to a wider range of actors.

Keywords: Financial Contagion; Spillover; Financial Interconnectedness; Financial Supervision; Natural Language Processing; Financial Economics (search for similar items in EconPapers)
JEL-codes: C1 E6 G2 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824002328

DOI: 10.1016/j.najef.2024.102307

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