War Discourse and Disaster Premia: 160 Years of Evidence from the Stock Market

The Review of Financial Studies, Volume 38, Issue 2, Feb 2025, Pages 457-506

163 Pages Posted: 18 Feb 2024 Last revised: 30 Jan 2025

See all articles by David Hirshleifer

David Hirshleifer

University of Southern California - Marshall School of Business - Finance and Business Economics Department; National Bureau of Economic Research (NBER)

Dat Mai

MKT MediaStats LLC

Kuntara Pukthuanthong

University of Missouri, Columbia

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 2024

Abstract

Using a semi-supervised topic model on 7,000,000 New York Times articles spanning 160 years, we test whether topics of media discourse predict future stock market excess returns to test rational and behavioral hypotheses about market valuation of disaster risk. Media discourse data address the challenge of sample size even when disasters are rare. Our methodology avoids look-ahead bias and addresses semantic shifts. Our discourse topics positively predict market excess returns, with War having an out-of-sample R2 of 1.35%. We call this effect the war return premium. The war return premium has increased in more recent time periods.

Keywords: War, Topic Modelling, Machine Learning, Predictability, Disaster Risk

JEL Classification: G0, G1, G2

Suggested Citation

Hirshleifer, David and Mai, Dat and Pukthuanthong, Kuntara, War Discourse and Disaster Premia: 160 Years of Evidence from the Stock Market (February 1, 2024). The Review of Financial Studies, Volume 38, Issue 2, Feb 2025, Pages 457-506, Available at SSRN: https://ssrn.com/abstract=4712558 or http://dx.doi.org/10.2139/ssrn.4712558

David Hirshleifer

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.uci.edu/dhirshle/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dat Mai

MKT MediaStats LLC ( email )

Cambridge, MA
United States

Kuntara Pukthuanthong (Contact Author)

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: https://www.kuntara.net/

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