SenSR: A Sentiment-Based Systemic Risk Indicator

25 Pages Posted: 11 Apr 2017  

Svetlana Borovkova

Vrije Universiteit Amsterdam - Faculty of Economics and Business Administration

Evgeny Garmaev

VU University Amsterdam - Finance

Philipp Lammers

VU University Amsterdam, Finance

Jordi Rustige

VU University Amsterdam, Faculty of Economics and Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: April 10, 2017

Abstract

The media influence our perception of reality and, since we act on those perceptions, reality is in turn affected by the media. News is a rich source of information, but, in addition, the sentiment (i.e., the tone of financial news) tells us how others perceive the financial system and how that perception changes. In this paper we propose a new indicator of the systemic risk in the global financial system. We call it SenSR: Sentiment-based Systemic Risk indicator. This measure is constructed by dynamically aggregating the sentiment in news about systemically important financial institutions (SIFIs). We test the SenSR for its ability to indicate or even forecast systemic stress in the financial system. We compare its performance to other well-known systemic risk indicators, as well as with macroeconomic fundamentals. We find that SenSR anticipates other systemic risk measures such as SRISK or VIX in signaling stressed times. In particular, it leads other systemic risk measures and macroeconomic indicators by as long as 12 weeks.

Keywords: systemic risk, sentiment analysis, Granger causality

JEL Classification: G01, G18, C58, G17

Suggested Citation

Borovkova, Svetlana and Garmaev, Evgeny and Lammers, Philipp and Rustige, Jordi, SenSR: A Sentiment-Based Systemic Risk Indicator (April 10, 2017). De Nederlandsche Bank Working Paper No. 553. Available at SSRN: https://ssrn.com/abstract=2951036 or http://dx.doi.org/10.2139/ssrn.2951036

Svetlana Borovkova (Contact Author)

Vrije Universiteit Amsterdam - Faculty of Economics and Business Administration ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Evgeny Garmaev

VU University Amsterdam - Finance ( email )

De Boelelaan 1105
Amsterdam
Netherlands

Philipp Lammers

VU University Amsterdam, Finance ( email )

De Boelelaan 1105
Amsterdam
Netherlands

Jordi Rustige

VU University Amsterdam, Faculty of Economics and Business Administration ( email )

De Boelelaan 1105
Amsterdam
Netherlands

Paper statistics

Downloads
90
Rank
65,456
Abstract Views
515