The words that lead to uncertainty: A measure based on word embeddings

Camila C. Pereira, Saulo B. Bastos and Daniel Cajueiro

Economic Systems, 2025, vol. 49, issue 3

Abstract: This paper examines the impact of economic uncertainty on stock returns. We introduce a new method that uses word vectors for word representation to estimate economic uncertainty from news stories. Our findings suggest that this measure of economic uncertainty influences the pricing of individual stocks. Furthermore, we show that firm characteristics, media coverage, public firm status, small-cap stocks, or illiquidity do not affect this relationship. We also compare our measure with two widely accepted uncertainty measures in the literature and find similar evidence.

Keywords: Economic uncertainty; Textual analysis; Stock returns; Abnormal returns (search for similar items in EconPapers)
JEL-codes: C55 C58 G10 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:49:y:2025:i:3:s0939362525000068

DOI: 10.1016/j.ecosys.2025.101294

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