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News Sentiment as Leading Indicators for Recessions

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  • Melody Y. Huang
  • Randall R. Rojas
  • Patrick D. Convery

Abstract

In the following paper, we use a topic modeling algorithm and sentiment scoring methods to construct a novel metric that serves as a leading indicator in recession prediction models. We hypothesize that the inclusion of such a sentiment indicator, derived purely from unstructured news data, will improve our capabilities to forecast future recessions because it provides a direct measure of the polarity of the information consumers and producers are exposed to. We go on to show that the inclusion of our proposed news sentiment indicator, with traditional sentiment data, such as the Michigan Index of Consumer Sentiment and the Purchasing Manager's Index, and common factors derived from a large panel of economic and financial indicators helps improve model performance significantly.

Suggested Citation

  • Melody Y. Huang & Randall R. Rojas & Patrick D. Convery, 2018. "News Sentiment as Leading Indicators for Recessions," Papers 1805.04160, arXiv.org, revised May 2018.
    • Handle: RePEc:arx:papers:1805.04160
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    Cited by:

    1. Poza, Carlos & Monge, Manuel, 2020. "A real time leading economic indicator based on text mining for the Spanish economy. Fractional cointegration VAR and Continuous Wavelet Transform analysis," International Economics, Elsevier, vol. 163(C), pages 163-175.

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