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Does Unusual News Forecast Market Stress?

Author

Listed:
  • Harry Mamaysky

    (Columbia University)

  • Paul Glasserman

    (Office of Financial Research
    Columbia University)

Abstract

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 more than 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.

Suggested Citation

  • Harry Mamaysky & Paul Glasserman, 2016. "Does Unusual News Forecast Market Stress?," Working Papers 16-04, Office of Financial Research, US Department of the Treasury.
    • Handle: RePEc:ofr:wpaper:16-04
    as

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    File URL: https://www.financialresearch.gov/working-papers/files/OFRwp-2016-04_Does-Unusual-News-Forecast-Stress.pdf
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    References listed on IDEAS

    as
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