Sovereign Risk and Fiscal Information : A Look at the U.S. State Default of the 1840s

This paper examines how newspaper reporting affects government bond prices during the U.S. state default of the 1840s. Using unsupervised machine learning algorithms, the paper constructs novel “fiscal information indices” for state governments based on U.S. newspapers at the time. The impact of the indices on government bond prices varies over time. Before the crisis, the entry of new states into the bond market spurred competition: more state-specific fiscal news imposed downward pressure on bond prices for established states. During the crisis, more state-specific fiscal information lowered bond prices for states with less responsible fiscal policy