The Network of Firms Implied by the News

59 Pages Posted: 7 Jun 2020

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.

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Date Written: February 20, 2019


We show that the news is a rich source of data on distressed firm links that drive firm-level and aggregate risks. The news tends to report about links in which a less popular firm is distressed and may contaminate a more popular firm. This constitutes a contagion channel that yields predictable returns and downgrades. Shocks to the degree of news-implied firm connectivity predict increases in aggregate volatilities, credit spreads, and default rates, and declines in output. To obtain our results, we propose a machine learning methodology that takes text data as input and outputs a data-implied firm network.

Keywords: Networks, contagion, predictability, risk measurement, machine learning, natural language processing

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: or

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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