Working Papers
This paper estimates a factor pricing model from firm disclosures. Using the latest techniques from natural language processing and machine learning, I isolate risk factors of firms from their disclosures. I then decompose these risk factors into those that are shared with other firms and those that are unshared risk factors. This sharing of risk naturally leads to the formation of networks of firms connected by the factors affecting them. From these networks, I build measures of risk at the firm level. I find that these text-based measures of shared risk achieve smaller pricing errors than the Fama-French three and five factor models. I also find that the text-based measure of unshared risk is not priced in the US stock market.
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Perceptions matter: Evidence from the Global Media Sentiment Indices of the Chinese Economy
Drawing from state-of-the-art techniques from Natural Language Processing, we construct two new media-based Chinese economic sentiment indices using a large corpus of English and Chinese news articles and demonstrate that differences in perception matter for economic outcomes. Our sentiment classification models improve the accuracy of lexicon approaches by a factor of two. Consistent with the agenda setting theory in communication research, we find that information flows from the English to the Chinese media—with the latter tending to be more positive-- and not the other way around, providing new evidence on international news diffusion.. Moreover, the difference in sentiment between Chinese and English news outlets—which we term the “perception gap”—has widened in recent years. Evidence from a structural VAR suggests that positive sentiment shocks foreshadow increases in China’s policy rates and asset returns, as well as global commodity prices. The impact of shocks to the English-media sentiment on domestic policy variables is magnified by shocks to the Chinese-media sentiment index. No such amplification is found for financial variables and commodity prices.
Work In Progress
Aggregate Effects of Acquisitions
Mergers and acquisitions (M&A) have been a part of economic study through the lens of industrial organization where the focus is on understanding changes in market power and subsequent anti-trust policy measures. However, there is reason to believe in the importance of M&A from a macroeconomic perspective - particularly in the context of firm investment. In this paper, I demonstrate that acquisitions have the following characteristics: (a) have a strong positive relationship with firm sales; (b) are procyclical at the macro level; (c) are lumpy. Building upon a standard general equilibrium model of firm investment, I interpret acquisitions as a form of intangible investment built through organizational capital. I then estimate the model and develop economic insights for the role of acquisitions in the macroeconomy.