Narrative Triggers of Information Sensitivity

Kim Ristolainen

No 156, Discussion Papers from Aboa Centre for Economics

Abstract: Economic research has shown that debt markets have an information sensitivity property that allows these markets to work properly when price discovery is absent and opaqueness is maintained. Dang, Gorton and Holmström (2015) argue that sufficiently “bad news” can switch debt to become information sensitive and start a financial crisis. We identify narrative triggers in the news by utilizing machine learning methods and daily information about firm default probability, the public’s information acquisition and newspaper articles. We find state-specific generalizable triggers whose effect is determined by the language used by journalists. This language is associated with different psychological thinking processes.

Keywords: information sensitivity; debt markets; financial crisis; machine learning; news data; primordial thinking process (search for similar items in EconPapers)
JEL-codes: G01 G14 G41 (search for similar items in EconPapers)
Pages: 43
Date: 2022-12
New Economics Papers: this item is included in nep-big, nep-cmp and nep-rmg
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Journal Article: Narrative triggers of information sensitivity (2024)
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