Does Finance Benefit Society? A Language Embedding Approach

52 Pages Posted: 3 Aug 2020

See all articles by Manish Jha

Manish Jha

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

Hongyi Liu

Washington University in St. Louis - Department of Economics

Asaf Manela

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

Date Written: July 18, 2020

Abstract

We measure popular sentiment toward finance using a computational linguistics approach applied to millions of books published in eight countries over hundreds of years. We document persistent differences in finance sentiment across countries despite ample time-series variation. Finance sentiment declines after epidemics and earthquakes, but rises following droughts, floods, and landslides. These heterogeneous effects of natural disasters suggest finance sentiment responds differently to the realization of insured versus uninsured risks. Using local projections, we find that positive shocks to finance sentiment have positive and persistent effects on economic growth. Our estimates predict a contraction in finance sentiment due to the COVID-19 pandemic that will exacerbate its long-term economic damage.

Keywords: sentiment, natural disasters, text analysis, word embedding, COVID-19

JEL Classification: C82, E44, G52, N40, Q54

Suggested Citation

Jha, Manish and Liu, Hongyi and Manela, Asaf, Does Finance Benefit Society? A Language Embedding Approach (July 18, 2020). Available at SSRN: https://ssrn.com/abstract=3655263

Manish Jha

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

One Brookings Drive
Campus Box 1133
St Louis, MO 63130-4899
United States
314-250-8129 (Phone)

HOME PAGE: http://mjha91.github.io

Hongyi Liu (Contact Author)

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States
314-250-7428 (Phone)

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

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