Does Unusual News Forecast Market Stress?

Harry Mamaysky () and Paul Glasserman ()
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Harry Mamaysky: Columbia University
Paul Glasserman: Columbia University

No 16-04, Working Papers from Office of Financial Research, US Department of the Treasury

Abstract: We find that an increase in the "unusualness" of news with negative sentiment predicts an increase in stock market volatility. Our analysis is based on more than 360,000 articles on 50 large financial companies, mostly banks and insurers, published in 1996-2014. We find that the interaction between measures of unusualness and sentiment forecasts volatility at both the company-specific and aggregate level. These effects persist for several months. The pattern of response of volatility in our aggregate analysis is consistent with a model of rational inattention among investors.

Keywords: Automated Text Analysis; unusualness of news; news sentiment; volatility (search for similar items in EconPapers)
Pages: 64 pages
Date: 2016-04-20
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Persistent link: https://EconPapers.repec.org/RePEc:ofr:wpaper:16-04

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