IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v154y2023ics0378426623001565.html
   My bibliography  Save this article

News indices on country fundamentals

Author

Listed:
  • Fulop, Andras
  • Kocsis, Zalan

Abstract

We propose a novel method to extract textual information about macro fundamentals. The method has two pillars, a set of pre-defined regular expressions and a Bayesian feature selection model. We apply our technique to a 2007–2022 Reuters news corpus from Factiva to create news indices of country fundamentals. Compared to several literature alternatives, we find our method to better identify and discriminate among fundamentals based on both (i) observed economic surprises (macro announcements compared to Bloomberg survey expectations) and (ii) labels on a manually classified test sample. In an application that investigates the determinants of sovereign credit spreads, we show that including our news indices next to traditional macro variables significantly raises the explanatory power attributed to fundamentals. We also show that part of the covariance between sovereign spreads and the VIX and US high yield indices is related to global fundamentals captured by our indices.

Suggested Citation

  • Fulop, Andras & Kocsis, Zalan, 2023. "News indices on country fundamentals," Journal of Banking & Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001565
    DOI: 10.1016/j.jbankfin.2023.106951
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426623001565
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2023.106951?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thompson, Samuel B., 2011. "Simple formulas for standard errors that cluster by both firm and time," Journal of Financial Economics, Elsevier, vol. 99(1), pages 1-10, January.
    2. Picault, Matthieu & Renault, Thomas, 2017. "Words are not all created equal: A new measure of ECB communication," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 136-156.
    3. Bańbura, Marta & Giannone, Domenico & Modugno, Michele & Reichlin, Lucrezia, 2013. "Now-Casting and the Real-Time Data Flow," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 195-237, Elsevier.
    4. Stephen Hansen & Michael McMahon, 2016. "Shocking Language: Understanding the Macroeconomic Effects of Central Bank Communication," NBER Chapters, in: NBER International Seminar on Macroeconomics 2015, National Bureau of Economic Research, Inc.
    5. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    6. Aruoba, S. BoraÄŸan & Diebold, Francis X. & Scotti, Chiara, 2009. "Real-Time Measurement of Business Conditions," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 417-427.
    7. Geert Bekaert & Campbell R Harvey & Christian T Lundblad & Stephan Siegel, 2014. "Political risk spreads," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 45(4), pages 471-493, May.
    8. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    9. Scotti, Chiara, 2016. "Surprise and uncertainty indexes: Real-time aggregation of real-activity macro-surprises," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 1-19.
    10. Kocsis, Zalan & Monostori, Zoltan, 2016. "The role of country-specific fundamentals in sovereign CDS spreads: Eastern European experiences," Emerging Markets Review, Elsevier, vol. 27(C), pages 140-168.
    11. Karel Mertens & Morten O. Ravn, 2013. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States," American Economic Review, American Economic Association, vol. 103(4), pages 1212-1247, June.
    12. Apel Mikael & Grimaldi Marianna Blix, 2014. "How Informative Are Central Bank Minutes?," Review of Economics, De Gruyter, vol. 65(1), pages 53-76, April.
    13. Francis A. Longstaff & Jun Pan & Lasse H. Pedersen & Kenneth J. Singleton, 2011. "How Sovereign Is Sovereign Credit Risk?," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 75-103, April.
    14. Stefano Nardelli & David Martens & Ellen Tobback, 2017. "Between hawks and doves: measuring Central Bank Communication," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Big Data, volume 44, Bank for International Settlements.
    15. Augustin, Patrick & Tédongap, Roméo, 2016. "Real Economic Shocks and Sovereign Credit Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(2), pages 541-587, April.
    16. Hyunyoung Choi & Hal Varian, 2012. "Predicting the Present with Google Trends," The Economic Record, The Economic Society of Australia, vol. 88(s1), pages 2-9, June.
    17. Manela, Asaf & Moreira, Alan, 2017. "News implied volatility and disaster concerns," Journal of Financial Economics, Elsevier, vol. 123(1), pages 137-162.
    18. Larsen, Vegard H. & Thorsrud, Leif A., 2019. "The value of news for economic developments," Journal of Econometrics, Elsevier, vol. 210(1), pages 203-218.
    19. Tobback, Ellen & Nardelli, Stefano & Martens, David, 2017. "Between hawks and doves: measuring central bank communication," Working Paper Series 2085, European Central Bank.
    20. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    21. Ang, Andrew & Longstaff, Francis A., 2013. "Systemic sovereign credit risk: Lessons from the U.S. and Europe," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 493-510.
    22. David O. Lucca & Francesco Trebbi, 2009. "Measuring Central Bank Communication: An Automated Approach with Application to FOMC Statements," NBER Working Papers 15367, National Bureau of Economic Research, Inc.
    23. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Youngjoon Lee & Soohyon Kim & Ki Young Park, 2018. "Deciphering Monetary Policy Committee Minutes with Text Mining Approach: A Case of South Korea," Working papers 2018rwp-132, Yonsei University, Yonsei Economics Research Institute.
    2. Gardner, Ben & Scotti, Chiara & Vega, Clara, 2022. "Words speak as loudly as actions: Central bank communication and the response of equity prices to macroeconomic announcements," Journal of Econometrics, Elsevier, vol. 231(2), pages 387-409.
    3. Martin Baumgaertner & Johannes Zahner, 2021. "Whatever it takes to understand a central banker - Embedding their words using neural networks," MAGKS Papers on Economics 202130, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Baranowski, Pawel & Bennani, Hamza & Doryń, Wirginia, 2021. "Do the ECB's introductory statements help predict monetary policy? Evidence from a tone analysis," European Journal of Political Economy, Elsevier, vol. 66(C).
    5. Baumgärtner, Martin & Zahner, Johannes, 2023. "Whatever it takes to understand a central banker: Embedding their words using neural networks," IMFS Working Paper Series 194, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    6. Lin, Jianhao & Mei, Ziwei & Chen, Liangyuan & Zhu, Chuanqi, 2023. "Is the People's Bank of China consistent in words and deeds?," China Economic Review, Elsevier, vol. 78(C).
    7. Dim, Chukwuma & Koerner, Kevin & Wolski, Marcin & Zwart, Sanne, 2022. "Hot off the press: News-implied sovereign default risk," EIB Working Papers 2022/06, European Investment Bank (EIB).
    8. Hubert, Paul & Labondance, Fabien, 2021. "The signaling effects of central bank tone," European Economic Review, Elsevier, vol. 133(C).
    9. Parle, Conor, 2022. "The financial market impact of ECB monetary policy press conferences — A text based approach," European Journal of Political Economy, Elsevier, vol. 74(C).
    10. Vegard H. Larsen & Leif Anders Thorsrud, 2018. "Business cycle narratives," Working Paper 2018/3, Norges Bank.
    11. Bennett Schmanski & Chiara Scotti & Clara Vega, 2023. "Fed Communication, News, Twitter, and Echo Chambers," Finance and Economics Discussion Series 2023-036, Board of Governors of the Federal Reserve System (U.S.).
    12. Mario Gonzalez and Raul Cruz Tadle & Raul Cruz Tadle, 2022. "Monetary policy press releases: an international comparison," BIS Working Papers 1023, Bank for International Settlements.
    13. Szyszko, Magdalena & Rutkowska, Aleksandra & Kliber, Agata, 2022. "Do words affect expectations? The effect of central banks communication on consumer inflation expectations," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 221-229.
    14. Eleni Kalamara & Arthur Turrell & Chris Redl & George Kapetanios & Sujit Kapadia, 2022. "Making text count: Economic forecasting using newspaper text," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(5), pages 896-919, August.
    15. Valerio Astuti & Alessio Ciarlone & Alberto Coco, 2022. "The role of central bank communication in inflation-targeting Eastern European emerging economies," Temi di discussione (Economic working papers) 1381, Bank of Italy, Economic Research and International Relations Area.
    16. Andres Algaba & David Ardia & Keven Bluteau & Samuel Borms & Kris Boudt, 2020. "Econometrics Meets Sentiment: An Overview Of Methodology And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 512-547, July.
    17. Himounet, Nicolas, 2022. "Searching the nature of uncertainty: Macroeconomic and financial risks VS geopolitical and pandemic risks," International Economics, Elsevier, vol. 170(C), pages 1-31.
    18. Johannes Zahner, 2020. "Above, but close to two percent. Evidence on the ECB’s inflation target using text mining," MAGKS Papers on Economics 202046, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    19. Picault, Matthieu & Pinter, Julien & Renault, Thomas, 2022. "Media sentiment on monetary policy: Determinants and relevance for inflation expectations," Journal of International Money and Finance, Elsevier, vol. 124(C).
    20. Guglielmo Maria Caporale & Menelaos Karanasos & Stavroula Yfanti, 2019. "Macro-Financial Linkages in the High-Frequency Domain: The Effects of Uncertainty on Realized Volatility," CESifo Working Paper Series 8000, CESifo.

    More about this item

    Keywords

    Financial media; Textual data; Regular expressions; Sequential Monte Carlo; Sovereign credit risk;
    All these keywords.

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G1 - Financial Economics - - General Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001565. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.