Patterns of Panic: Financial Crisis Language in Historical Newspapers

Abstract

This paper presents a new indicator on financial stress from 1889 to 2016 based on the reporting in five major US newspapers. This indicator provides detailed and high-frequency coverage of more than a century of financial history based on a previously untapped corpus of 35 million newspaper titles. I validate the indicator using 23,000 manually coded articles. The indicator displays plausible comovement with key economic variables and other measures of financial instability. Periods of negative financial sentiment predict recessions, rising unemployment, foreshadow lower stock market performance and rising corporate bond spreads.

Keywords: Sentiment, Financial Markets, Newspapers

JEL Classification: G01, E44, N21, N22