The Network of Firms Implied by the News

61 Pages Posted: 31 Jul 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.

Multiple version iconThere are 3 versions of this paper

Date Written: January 2020


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: contagion, machine learning, natural language processing, networks, predictability, risk measurement

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 (January 2020). ESRB Working Paper Series No. 2020/108, 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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