Policy News and Stock Market Volatility

Scott Baker, Nicholas Bloom, Steven Davis and Kyle J. Kost

No 25720, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use newspapers to create Equity Market Volatility (EMV) trackers at daily and monthly frequencies. Our headline EMV tracker moves closely with the VIX and the S&P500 returns volatility in and out of sample. We exploit the volume of newspaper text to construct forty category-specific EMV trackers. News about commodity markets, interest rates, real estate markets, aggregate activity, and inflation figure prominently in EMV articles. Policy news is another major source of market volatility: 30 percent of EMV articles discuss tax policy, 30 percent discuss monetary policy, and 25 percent refer to some form of regulation. Combining our newspaper-based trackers with textual analysis of 10-K filings, we obtain monthly firm-level risk exposure measures. These measures help explain the cross-sectional structure of realized volatilities and its evolution over time, even after conditioning on firm and time fixed effects.

JEL-codes: E44 G12 G18 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-rmg
Note: AP EFG ME
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Citations: View citations in EconPapers (153)

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