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The network of firms implied by the news

by Gustavo Schwenkler, Hannan Zheng
We show that the news is a rich source of data on distressed firm links that drive firm- level and aggregate risks. The news tends to report about links in which a less popular firm is distressed and may contaminate a more popular firm. This constitutes a contagion channel that yields predictable returns and downgrades. Shocks to the degree of news-implied firm connectivity predict increases in aggregate volatilities, credit spreads, and default rates, and declines in output. To obtain our results, we propose a machine learning methodology that takes text data as input and outputs a data-implied firm network.
Year of publication:
[2020]
Authors: Schwenkler, Gustavo ; Zheng, Hannan
Publisher: Frankfurt am Main, Germany : European Systemic Risk Board
Subject: Networks | contagion | predictability | risk measurement | machine learning | natural language processing | Künstliche Intelligenz | Artificial intelligence | Unternehmensnetzwerk | Business network | Theorie | Theory
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