Business News and Business Cycles

Journal of Finance, Forthcoming

78 Pages Posted: 7 Sep 2019 Last revised: 27 Jul 2023

See all articles by Leland Bybee

Leland Bybee

Yale School of Management

Bryan T. Kelly

Yale SOM; AQR Capital Management, LLC; National Bureau of Economic Research (NBER)

Asaf Manela

Washington University in St. Louis - John M. Olin Business School; Reichman University

Dacheng Xiu

University of Chicago - Booth School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2023

Abstract

We propose an approach to measuring the state of the economy via textual analysis of business news. From the full text of 800,000 Wall Street Journal articles for 1984–2017, we estimate a topic model that summarizes business news into interpretable topical themes and quantifies the proportion of news attention allocated to each theme over time. News attention closely tracks a wide range of economic activities and can forecast aggregate stock market returns. A text-augmented VAR demonstrates the large incremental role of news text in forecasting macroeconomic dynamics. We retrieve the narratives that underlie these improvements in market and business cycle forecasts.

Keywords: Textual analysis, macroeconomic news, attention, Wall Street Journal, volatility, VAR, machine learning

Suggested Citation

Bybee, Leland and Kelly, Bryan T. and Manela, Asaf and Xiu, Dacheng, Business News and Business Cycles (April 1, 2023). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3446225 or http://dx.doi.org/10.2139/ssrn.3446225

Leland Bybee

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Bryan T. Kelly (Contact Author)

Yale SOM ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Asaf Manela

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-9178 (Phone)

HOME PAGE: http://apps.olin.wustl.edu/faculty/manela

Reichman University ( email )

Israel

Dacheng Xiu

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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