Shared Causes, Shared Risks? Evidence from Economic News

In financial markets, common sources of risk are often rendered and measured in the form of correlation. While there exists a substantial body of literature on the structural impact of correlation in financial mar- kets, the fundamental intuition rests primarily on estimating the exposure to joint risk sources through the correlation matrix. However, price correlations alone fail to capture the entirety of the common risk envi- ronment within which firms operate. This paper argues that a more comprehensive understanding of joint risk exposure can be achieved by incorporating a causality network extracted from narrative parsing of news and financial filings in economic models.

Recommended citation: Gorduza, Ash (2023), Shared Causes, Shared Risks? Evidence from Economic News