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The words that lead to uncertainty: A measure based on word embeddings

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  • Pereira, Camila C.
  • Bastos, Saulo B.
  • Cajueiro, Daniel O.

Abstract

This paper examines the impact of economic uncertainty on stock returns. We introduce a new method that uses word vectors for word representation to estimate economic uncertainty from news stories. Our findings suggest that this measure of economic uncertainty influences the pricing of individual stocks. Furthermore, we show that firm characteristics, media coverage, public firm status, small-cap stocks, or illiquidity do not affect this relationship. We also compare our measure with two widely accepted uncertainty measures in the literature and find similar evidence.

Suggested Citation

  • Pereira, Camila C. & Bastos, Saulo B. & Cajueiro, Daniel O., 2025. "The words that lead to uncertainty: A measure based on word embeddings," Economic Systems, Elsevier, vol. 49(3).
    • Handle: RePEc:eee:ecosys:v:49:y:2025:i:3:s0939362525000068
    DOI: 10.1016/j.ecosys.2025.101294
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    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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