IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v187y2026ics0165188926000771.html

Risky news and credit market sentiment

Author

Listed:
  • Labonne, Paul
  • Thorsrud, Leif Anders

Abstract

The nonlinear nexus between financial conditions indicators and the conditional distribution of GDP growth has recently been challenged. We show how one can use textual economic news and word embeddings to construct an alternative indicator which by design associates growth-at-risk to news about financial conditions. We then document that the proposed indicator is particularly informative about the lower left tail of the GDP distribution and delivers significantly better out-of-sample density forecasts than commonly used alternatives. Speaking to theories on endogenous information choice and credit-market sentiment we further document that the news-based index likely carries information about beliefs rather than fundamentals.

Suggested Citation

  • Labonne, Paul & Thorsrud, Leif Anders, 2026. "Risky news and credit market sentiment," Journal of Economic Dynamics and Control, Elsevier, vol. 187(C).
    • Handle: RePEc:eee:dyncon:v:187:y:2026:i:c:s0165188926000771
    DOI: 10.1016/j.jedc.2026.105331
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165188926000771
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jedc.2026.105331?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

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    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:dyncon:v:187:y:2026:i:c:s0165188926000771. 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.

    We have no bibliographic references for this item. You can help adding them by using 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/jedc .

    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.