Tell It Like It Is: Disclosed Risks and Factor Portfolios

50 Pages Posted: 4 Oct 2014

See all articles by Ryan D. Israelsen

Ryan D. Israelsen

Michigan State University - Department of Finance

Date Written: October 2, 2014

Abstract

Using new textual analysis techniques to extract a broad set of disclosed risk factors from firms' SEC filings, I examine characteristics of the firms and industries most likely to make each type of disclosure, and investigate the relation between firms' risk disclosures and their stock return volatilities and factor loadings. Finally, I form risk disclosure portfolios and perform a style analysis to examine the disclosed risks associated with commonly used asset pricing risk factors. Disclosed risks about credit markets and constraints explain much of the variation in the Fama-French factors, suggesting small, value firms may be more risky in downturns.

Keywords: Disclosure, Risk, Stock Returns, Topic Models, Textual Analysis

JEL Classification: G12, G14, G32, D83

Suggested Citation

Israelsen, Ryan D., Tell It Like It Is: Disclosed Risks and Factor Portfolios (October 2, 2014). Available at SSRN: https://ssrn.com/abstract=2504522 or http://dx.doi.org/10.2139/ssrn.2504522

Ryan D. Israelsen (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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