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War Discourse and the Cross Section of Expected Stock Returns

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Listed:
  • David Hirshleifer
  • Dat Mai
  • Kuntara Pukthuanthong

Abstract

A war-related factor model derived from textual analysis of media news reports explains the cross section of expected stock returns. Using a semi-supervised topic model to extract discourse topics from 7,000,000 New York Times stories spanning 160 years, the war factor predicts the cross section of returns across test assets derived from both traditional and machine learning construction techniques, and spanning 138 anomalies. Our findings are consistent with assets that are good hedges for war risk receiving lower risk premia, or with assets that are more positively sensitive to war prospects being more overvalued. The return premium on the war factor is incremental to standard effects.

Suggested Citation

  • David Hirshleifer & Dat Mai & Kuntara Pukthuanthong, 2023. "War Discourse and the Cross Section of Expected Stock Returns," NBER Working Papers 31348, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31348
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    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G4 - Financial Economics - - Behavioral Finance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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