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The Impact of News Sentiment on Financial Risk: An Extreme Value Approach

In: HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers

Author

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  • Peter Julian Cayton
  • Kin-Yip Ho

Abstract

Methods of estimating and analysing the impact of news sentiment on the behaviour of prices of financial instruments are proposed, based on the block maxima approach. The methods assume that news sentiment affects the maximum and minimum returns of an instrument through their generalised extreme value distributions. By applying these methods to the stock return data of the S&P500 firms, the predictive ability and accuracy of our methods are assessed from a risk-management perspective. To quantify the impact of news sentiment, we make use of the various sentiment measures from the comprehensive and unique RavenPack® database, which captures more than 1200 types of firm-specific and macroeconomic-specific events. The empirical results suggest that news sentiment has the potential of enhancing the predictive ability of our methods.

Suggested Citation

  • Peter Julian Cayton & Kin-Yip Ho, 2019. "The Impact of News Sentiment on Financial Risk: An Extreme Value Approach," World Scientific Book Chapters, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers, chapter 13, pages 315-334, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813236653_0013
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    More about this item

    Keywords

    Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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