The Impact of News Sentiment on Financial Risk: An Extreme Value Approach

Peter Julian Cayton and Kin-Yip Ho

Chapter 13 in Handbook of Global Financial Markets:Transformations, Dependence, and Risk Spillovers, 2019, pp 315-334 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Methods of estimating and analysing the impact of news sentiment on the behaviour of prices of financial instruments are proposed, based on the block maxima approach. The methods assume that news sentiment affects the maximum and minimum returns of an instrument through their generalised extreme value distributions. By applying these methods to the stock return data of the S&P500 firms, the predictive ability and accuracy of our methods are assessed from a risk-management perspective. To quantify the impact of news sentiment, we make use of the various sentiment measures from the comprehensive and unique RavenPack® database, which captures more than 1200 types of firm-specific and macroeconomic-specific events. The empirical results suggest that news sentiment has the potential of enhancing the predictive ability of our methods.

Keywords: Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets (search for similar items in EconPapers)
JEL-codes: F37 (search for similar items in EconPapers)
Date: 2019
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