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Does Unusual News Forecast Market Stress?

Author

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  • Glasserman, Paul
  • Mamaysky, Harry

Abstract

An increase in “unusual” news with negative sentiment predicts an increase in stock market volatility. Unusual positive news forecasts lower volatility. Our analysis is based on over 360,000 articles on 50 large financial companies, published during the period of 1996–2014. Unusualness interacted with sentiment forecasts company-specific and aggregate volatility several months ahead. Furthermore, unusual news is reflected more slowly in aggregate volatility than company-specific volatility. News measures from articles explicitly about the “market,” which are more easily accessible to investors, do not forecast volatility. The observed responses of volatility to news may be explained by attention constraints on investors.

Suggested Citation

  • Glasserman, Paul & Mamaysky, Harry, 2019. "Does Unusual News Forecast Market Stress?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(5), pages 1937-1974, October.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:05:p:1937-1974_00
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    Cited by:

    1. Teona Shugliashvili, 2023. "The words have power: the impact of news on exchange rates," FFA Working Papers 5.006, Prague University of Economics and Business, revised 31 Jul 2023.
    2. Alexander Koch & Toan Luu Duc Huynh & Mei Wang, 2024. "News sentiment and international equity markets during BREXIT period: A textual and connectedness analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 5-34, January.
    3. Lee, Kangsan & Jeong, Daeyoung, 2023. "Too much is too bad: The effect of media coverage on the price volatility of cryptocurrencies," Journal of International Money and Finance, Elsevier, vol. 133(C).
    4. Justina Deveikyte & Helyette Geman & Carlo Piccari & Alessandro Provetti, 2020. "A Sentiment Analysis Approach to the Prediction of Market Volatility," Papers 2012.05906, arXiv.org.
    5. Calomiris, Charles W. & Mamaysky, Harry, 2019. "How news and its context drive risk and returns around the world," Journal of Financial Economics, Elsevier, vol. 133(2), pages 299-336.
    6. Charles W. Calomiris & Nida Çakır Melek & Harry Mamaysky, 2021. "Predicting the Oil Market," NBER Working Papers 29379, National Bureau of Economic Research, Inc.
    7. Hao, Jing & Xiong, Xiong, 2021. "Retail investor attention and firms' idiosyncratic risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 74(C).
    8. García, Diego & Hu, Xiaowen & Rohrer, Maximilian, 2023. "The colour of finance words," Journal of Financial Economics, Elsevier, vol. 147(3), pages 525-549.
    9. Alex Frino & Caihong Xu & Z. Ivy Zhou, 2022. "Are option traders more informed than Twitter users? A PVAR analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(9), pages 1755-1771, September.
    10. Huynh, Toan Luu Duc & Nasir, Muhammad Ali & Vo, Xuan Vinh & Nguyen, Thong Trung, 2020. "“Small things matter most”: The spillover effects in the cryptocurrency market and gold as a silver bullet," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    11. Jin, Xuejun & Chen, Cheng & Yang, Xiaolan, 2024. "The effect of international media news on the global stock market," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 50-69.
    12. Yuna Hao & Behrang Vand & Benjamin Manrique Delgado & Simone Baldi, 2023. "Market Manipulation in Stock and Power Markets: A Study of Indicator-Based Monitoring and Regulatory Challenges," Energies, MDPI, vol. 16(4), pages 1-28, February.
    13. Chen, Sipeng & Li, Gang, 2023. "Why does option-implied volatility forecast realized volatility? Evidence from news events," Journal of Banking & Finance, Elsevier, vol. 156(C).
    14. Liu, Jinan & Valcarcel, Victor J., 2024. "Hedging inflation expectations in the cryptocurrency futures market," Journal of Financial Stability, Elsevier, vol. 70(C).
    15. Paul E. Soto, 2021. "Breaking the Word Bank: Measurement and Effects of Bank Level Uncertainty," Journal of Financial Services Research, Springer;Western Finance Association, vol. 59(1), pages 1-45, April.
    16. Muhammad Ateeq ur REHMAN & Syed Ghulam Meran SHAH & Lucian-Ionel CIOCA & Alin ARTENE, 2021. "Accentuating the Impacts of Political News on the Stock Price, Working Capital and Performance: An Empirical Review of Emerging Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 55-73, June.
    17. Andres Algaba & David Ardia & Keven Bluteau & Samuel Borms & Kris Boudt, 2020. "Econometrics Meets Sentiment: An Overview Of Methodology And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 512-547, July.
    18. Xiaohong Shen & Gaoshan Wang & Yue Wang & Alfred Peris, 2021. "The Influence of Research Reports on Stock Returns: The Mediating Effect of Machine-Learning-Based Investor Sentiment," Discrete Dynamics in Nature and Society, Hindawi, vol. 2021, pages 1-14, December.
    19. Liu, Qingbai & Wang, Chuanjie & Zhang, Ping & Zheng, Kaixin, 2021. "Detecting stock market manipulation via machine learning: Evidence from China Securities Regulatory Commission punishment cases," International Review of Financial Analysis, Elsevier, vol. 78(C).
    20. Aysan, Ahmet Faruk & Caporin, Massimiliano & Cepni, Oguzhan, 2024. "Not all words are equal: Sentiment and jumps in the cryptocurrency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    21. Muhammad Ateeq ur REHMAN & Furman ALI & Shang XIE, 2022. "Impact of Foreign Investment News on the Return, Cost of Equity and Cash Flow Activities," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 112-127, December.
    22. Nida Çakır Melek & Charles W. Calomiris & Harry Mamaysky, 2020. "Mining for Oil Forecasts," Research Working Paper RWP 20-20, Federal Reserve Bank of Kansas City.
    23. Liang, Chao & Wang, Lu & Duong, Duy, 2024. "More attention and better volatility forecast accuracy: How does war attention affect stock volatility predictability?," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 1-19.

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