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 over 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.
Does Unusual News Forecast Market Stress?
Submitted by Staff on September 29, 2015
|Date: July 1, 2015|
|Author(s): Harry Mamaysky and Paul Glasserman|
|Affiliation: Columbia University|