Essays in empirical financial economics
File(s)
Author(s)
Baz, Salim
Type
Thesis
Abstract
In Chapter 1, we construct empirical measures of U.S. business-cycle activity based on media mentions of the word “recession” in financial newspapers. The MRIs (media recession indicators) are useful predictors of U.S. economic activity and stock returns, both in-sample and out-of-sample. Moreover, they compare favourably with existing business-cycle predictors (term and default premium, uncertainty and big data indicators). The MRIs can also predict the probability of a U.S. recession six months in advance. Using this information, we show that simple market-timing investment strategies substantially outperform the stock market index (S&P500). We conclude that reading the financial press can generate financial value.
In Chapter 2, we extend the indices constructed in Chapter 1 by exploring the difference between finance-specialized and nonspecialized ones in forecasting economic activity. We find significant differences in the performance of MRIs depending on the subset of news media used to construct them, which gives us an indication of how narratives might spread. Importantly, media coverage can affect individual expectations and economic decisions in the Michigan Survey of Consumer Expectations, Abstract 6 and is correlated with Google searches for the word “recession”. Our results provide evidence on how economic narratives might spread and affect actual economic decisions and therefore be important in understanding economic activity.
In Chapter 3, we propose a new measure of firm-level climate regulatory exposure based on 10-K filings. Using the 2016 Trump election as an exogenous shock to perceived climate regulatory risks, we identify a positive effect on stock returns for firms with higher climate regulatory exposures; they experience economically and statistically significant higher cumulative returns post-election...
In Chapter 2, we extend the indices constructed in Chapter 1 by exploring the difference between finance-specialized and nonspecialized ones in forecasting economic activity. We find significant differences in the performance of MRIs depending on the subset of news media used to construct them, which gives us an indication of how narratives might spread. Importantly, media coverage can affect individual expectations and economic decisions in the Michigan Survey of Consumer Expectations, Abstract 6 and is correlated with Google searches for the word “recession”. Our results provide evidence on how economic narratives might spread and affect actual economic decisions and therefore be important in understanding economic activity.
In Chapter 3, we propose a new measure of firm-level climate regulatory exposure based on 10-K filings. Using the 2016 Trump election as an exogenous shock to perceived climate regulatory risks, we identify a positive effect on stock returns for firms with higher climate regulatory exposures; they experience economically and statistically significant higher cumulative returns post-election...
Version
Open Access
Date Issued
2022-08-15
Date Awarded
01/01/2023
License URL
Advisor
Lara Cathcart, Alexander Michaelides
Publisher Department
Business School
Publisher Institution
Imperial College London
Qualification Level
Doctoral
Qualification Name
Doctor of Philosophy (PhD)