Informativeness and Timeliness of 10-K Text Similarity for Predicting Tail-Risk Comovement

48 Pages Posted: 12 Jun 2017 Last revised: 13 Jun 2017

See all articles by Robert M. Bushman

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Jason V. Chen

University of Illinois at Chicago

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business

Date Written: May 31, 2017

Abstract

We measure a bank’s connectedness by constructing a measure of its text similarity with other banks based on 10-K business description and MD&A discussions. We find that tail-risk comovement between a given bank and the banking system is increasing in the bank’s average similarity. We also construct groups of connected peer banks, finding that banks co-move significantly more in the tails with their highest similarity peers. Finally, we separate 10-K text into boilerplate and non-boilerplate components. We find that both boilerplate and non-boilerplate similarity have incremental information about future tail comovement. However, non-boilerplate similarity is significantly timelier than boilerplate, consistent with non-boilerplate similarity capturing commonalities across banks in currently evolving fundamentals and boilerplate similarity capturing commonalities in structural features that evolve slowly over time.

Keywords: Textual analysis, Banking, risk, text similarity, boilerplate disclosure

JEL Classification: M41, G21

Suggested Citation

Bushman, Robert M. and Chen, Jason V. and Williams, Christopher D., Informativeness and Timeliness of 10-K Text Similarity for Predicting Tail-Risk Comovement (May 31, 2017). Available at SSRN: https://ssrn.com/abstract=2983315 or http://dx.doi.org/10.2139/ssrn.2983315

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Jason V. Chen

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Christopher D. Williams (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
(734)647-2842 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
217
rank
137,519
Abstract Views
829
PlumX Metrics