News Cohesiveness: an Indicator of Systemic Risk in Financial Markets

Matija Pi\v{s}korec, Nino Antulov-Fantulin, Petra Kralj Novak, Igor Mozeti\v{c}, Miha Gr\v{c}ar, Irena Vodenska and Tomislav \v{S}muc

Papers from arXiv.org

Abstract: Motivated by recent financial crises significant research efforts have been put into studying contagion effects and herding behaviour in financial markets. Much less has been said about influence of financial news on financial markets. We propose a novel measure of collective behaviour in financial news on the Web, News Cohesiveness Index (NCI), and show that it can be used as a systemic risk indicator. We evaluate the NCI on financial documents from large Web news sources on a daily basis from October 2011 to July 2013 and analyse the interplay between financial markets and financially related news. We hypothesized that strong cohesion in financial news reflects movements in the financial markets. Cohesiveness is more general and robust measure of systemic risk expressed in news, than measures based on simple occurrences of specific terms. Our results indicate that cohesiveness in the financial news is highly correlated with and driven by volatility on the financial markets.

Date: 2014-02
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Published in Scientific Reports 4: 5038 (2014)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1402.3483

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