NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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How News and Its Context Drive Risk and Returns Around the World

Charles W. Calomiris, Harry Mamaysky

NBER Working Paper No. 24430
Issued in March 2018
NBER Program(s):Asset Pricing, International Finance and Macroeconomics

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.

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Document Object Identifier (DOI): 10.3386/w24430

Published: 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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