The Network of Firms Implied by the News

45 Pages Posted: 7 Jun 2020 Last revised: 17 Oct 2024

See all articles by Gustavo Schwenkler

Gustavo Schwenkler

Santa Clara University - Department of Finance

Hannan Zheng

Boston University - Department of Finance & Economics; Fidelity Investments, Inc.

Multiple version iconThere are 3 versions of this paper

Date Written: February 20, 2019

Abstract

Measuring aggregate risks is challenging due to the lack of firm interconnections data. Our paper changes this by introducing a natural language processing methodology that leverages financial news to construct firm networks. Applying our methodology to Reuters between 2006 and 2013, we extract a vast network of 8,400 links between 2,000 firms and make it openly accessible. Its connectivity statistics predict aggregate risk measures, like S&P 500 returns and industrial production growth, by revealing information about financial uncertainty and contagion. Our work complements existing research by providing more comprehensive and timely firm networks, and more predictive signals of aggregate fluctuations.

Keywords: Networks, contagion, predictability, risk measurement, machine learning, natural language processing. JEL codes: E32

JEL Classification: E32, E44, L11, G10, C82

Suggested Citation

Schwenkler, Gustavo and Zheng, Hannan and Zheng, Hannan, The Network of Firms Implied by the News (February 20, 2019). Boston University Questrom School of Business Research Paper No. 3320859, Available at SSRN: https://ssrn.com/abstract=3320859 or http://dx.doi.org/10.2139/ssrn.3320859

Gustavo Schwenkler (Contact Author)

Santa Clara University - Department of Finance ( email )

Santa Clara, CA 95053
United States

Hannan Zheng

Fidelity Investments, Inc. ( email )

United States

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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