Risk Exposures from Risk Disclosures: What They Said and How They Said It

40 Pages Posted: 30 Nov 2023

See all articles by Rahul Mazumder

Rahul Mazumder

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Seth Pruitt

Arizona State University (ASU) - Finance Department

Landon Ross

U.S. Securities and Exchange Commission

Date Written: August 2023

Abstract

We extract information from 10-K risk disclosures: topic models measure what is discussed, and context models measure how it is discussed. We find that both contain significant predictive information about future aggregate risk exposures, even controlling for (structured) firm characteristics. For market exposure, only management's choice of context is useful; for other factors, tradable and nontradable, both context and topic information is useful. Further, we show that topics and contexts are statistically distinct. We analyze their relationship and shed light on those methods while economically interpreting our results.

Keywords: Text Analysis, Asset Pricing, Factor Model, Conditional Betas, Word embedding

JEL Classification: C23, C53, G11, G12, G17

Suggested Citation

Mazumder, Rahul and Pruitt, Seth and Ross, Landon, Risk Exposures from Risk Disclosures: What They Said and How They Said It (August 2023). Available at SSRN: https://ssrn.com/abstract=4637697 or http://dx.doi.org/10.2139/ssrn.4637697

Rahul Mazumder

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Seth Pruitt

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Landon Ross (Contact Author)

U.S. Securities and Exchange Commission ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
32
Abstract Views
96
PlumX Metrics