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Text Spillover: Measuring connectedness of financial institutions based on news text data

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  • Klaucke, Konstantin

Abstract

The interconnectedness of financial institutions can facilitate the contagion of financial crises and poses significant risks to financial stability. While well-established econometric spillover measures exist, they are usually based on numerical data, which may not always be available or timely. This paper explores the feasibility of using text data analysis as an alternative measure of interconnectedness between financial institutions. A novel news-based spillover measure is constructed and applied to a system of five banks, using an up-to-date dataset of nearly 47,000 news articles. The results of this text spillover index are compared to the Diebold-Yilmaz spillover index for validation. The findings indicate that text data analysis can provide valuable insight into the interconnectedness of financial institutions and substantiate the underlying hypothesis that the co-occurrence of actors in news articles allows direct conclusions about their connectedness. This enables new types of analysis and extends spillover measures to a wider range of actors.

Suggested Citation

  • Klaucke, Konstantin, 2025. "Text Spillover: Measuring connectedness of financial institutions based on news text data," The North American Journal of Economics and Finance, Elsevier, vol. 75(PA).
    • Handle: RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824002328
    DOI: 10.1016/j.najef.2024.102307
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    More about this item

    Keywords

    Financial Contagion; Spillover; Financial Interconnectedness; Financial Supervision; Natural Language Processing; Financial Economics;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G2 - Financial Economics - - Financial Institutions and Services

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