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The Cambridge-INET Institute - continuing as the Janeway Institute

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Kuhlen, N. and Preston, A.

News Entropy

WP Number: 2114

Abstract: We introduce the concept of ’news entropy’ to characterise the relationship between news coverage and the economy. Intuitively, news entropy decreases as the news focus on a smaller set of pressing topics. We observe that news entropy exhibits clear negative spikes close to important economic, financial, and political events. Investigating the effect of changes in news entropy, we find that decreases are associated with two key features: an increase in uncertainty measures and a macroeconomic contraction. The variable is priced in the cross-section of stock returns and low news entropy is associated with increased stock price volatility at the firm level.

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PDF: wp2114.pdf

Open Access Link: 10.17863/CAM.69992

Theme: transmission