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War Discourse and Disaster Premia: 160 Years of Evidence from Stock and Bond Markets

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  • David Hirshleifer
  • Dat Y. Mai
  • Kuntara Pukthuanthong

Abstract

Using a semi-supervised topic model on 7,000,000 New York Times articles spanning 160 years, we test whether topics of media discourse predict future stock market excess returns to test rational and behavioral hypotheses about market valuation of disaster risk. Media discourse data address the challenge of sample size even when disasters are rare. Our methodology avoids look-ahead bias and addresses semantic shifts. Our discourse topics positively predict market excess returns, with War having an out-of-sample R² of 1.35%. We call this effect the war return premium. The war return premium has increased in more recent time periods.

Suggested Citation

  • David Hirshleifer & Dat Y. Mai & Kuntara Pukthuanthong, 2023. "War Discourse and Disaster Premia: 160 Years of Evidence from Stock and Bond Markets," NBER Working Papers 31204, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31204
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    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G4 - Financial Economics - - Behavioral Finance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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