Sentiment, Risk, and Market Shock: The Impact of AI Risk Disclosures on Stock Reactions to DeepSeek_R1

Abstract

This study explores how the sentiment of AI risk disclosures affects stock market reactions to the DeepSeek_R1 event. Analysing 10-K reports of IT companies using FinBERT, we find that firms with more optimistic AI risk disclosures experience significantly stronger negative market reactions. This suggests that overly optimistic disclosures may lead investors to underestimate potential AI risks. Our research offers new empirical evidence on the downsides of optimistic AI risk disclosures and underscores the need for balanced risk communication. The findings have practical implications for investors and provide insights for managers and regulators addressing emerging technological risk disclosure issues.

Keywords: Risk disclosure, Sentiment, DeepSeek, Market reaction, AI risks