How News and Its Context Drive Risk and Returns Around the World

Charles Calomiris and Harry Mamaysky

No 24430, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a classification methodology for the context and content of news articles to predict risk and return in stock markets in 51 developed and emerging economies. A parsimonious summary of news, including topic-specific sentiment, frequency, and unusualness (entropy) of word flow, predicts future country-level returns, volatilities, and drawdowns. Economic and statistical significance are high and larger for year-ahead than monthly predictions. The effect of news measures on market outcomes differs by country type and over time. News stories about emerging markets contain more incremental information. Out-of-sample testing confirms the economic value of our approach for forecasting country-level market outcomes.

JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-for and nep-rmg
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Citations: View citations in EconPapers (7)

Published as Charles W. Calomiris & Harry Mamaysky, 2019. "How News and Its Context Drive Risk and Returns Around the World," Journal of Financial Economics, .

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