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News implied volatility and corporate leverage

Author

Listed:
  • Cao, Zhen
  • Gao, Qiang
  • Wang, Shijie
  • Wang, Yuanzhi

Abstract

We construct a text-based measure of uncertainty in China by leveraging news data from Sina Finance spanning January 2014 to December 2022. This measure, termed news implied volatility (NVIX), is derived from the co-movement between 5.4 million articles and option-implied volatility in the Chinese market. We further estimate the covariance between individual stock returns and NVIX, defined as the NVIX beta. Our results indicate that a higher NVIX beta is associated with lower corporate leverage, reflecting precautionary deleveraging amid rising uncertainty. Additional analysis reveals that as NVIX beta rises, firms tend to increase cash holdings, improving short-term solvency. This increase in liquidity reduces the reliance on credit, thereby leading to a decrease in leverage ratios. We also document significant heterogeneity across firm types, regions, and business cycles. Notably, the effect of NVIX beta reverses during recessions, suggesting it acts as a dynamic risk signal.

Suggested Citation

  • Cao, Zhen & Gao, Qiang & Wang, Shijie & Wang, Yuanzhi, 2026. "News implied volatility and corporate leverage," Pacific-Basin Finance Journal, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:pacfin:v:96:y:2026:i:c:s0927538x25003725
    DOI: 10.1016/j.pacfin.2025.103035
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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