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Narrative Triggers of Information Sensitivity

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  • Kim Ristolainen

    (Department of Economics, Turku School of Economics, University of Turku, Finland)

Abstract

Economic research has shown that debt markets have an information sensitivity property that allows these markets to work properly when price discovery is absent and opaqueness is maintained. Dang, Gorton and Holmström (2015) argue that sufficiently “bad news” can switch debt to become information sensitive and start a financial crisis. We identify narrative triggers in the news by utilizing machine learning methods and daily information about firm default probability, the public’s information acquisition and newspaper articles. We find state-specific generalizable triggers whose effect is determined by the language used by journalists. This language is associated with different psychological thinking processes.

Suggested Citation

  • Kim Ristolainen, 2022. "Narrative Triggers of Information Sensitivity," Discussion Papers 156, Aboa Centre for Economics.
    • Handle: RePEc:tkk:dpaper:dp156
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    References listed on IDEAS

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    More about this item

    Keywords

    information sensitivity; debt markets; financial crisis; machine learning; news data; primordial thinking process;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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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