Impact of central bank speeches: A new approach in text analysis

Guide(s)

Basu, Sankarshan

Department

Finance and Accounting

Area

Finance and Accounting

University

Indian Institute of Management Bangalore

Place

Bangalore

Publication Date

3-31-2021

Year Awarded

March 2021

Year Completed

March 2021

Year Registered

June 2017

Abstract

This thesis examines the impact of central bank communication on market return. The central bank communication is proxied by speeches delivered by the respective governors/chairpersons. The tone from central bank speeches is extracted and analyzed with respect to its impact on the stock market returns across a varied array of economies. The impact of market returns is analyzed independently as well as in the presence of existing tone variables. Similar exercise has been attempted in the past (Lee et al. (1991), Neal and Wheatley (1998), Baker and Wurgler (2006), Baker and Wurgler (2007), Schmeling (2009) and Szu et al. (2015)). An important distinction in this study is with respect to the process of tone quantification from central bank communication. One of the major questions in tone quantification is how many word/s should be considered as a batch (primary unit)? The previous studies in related literature have ranged the same from “one word at a time” (bagof-words approach)(Tetlock (2007), Loughran and McDonald (2016)) to ngram analysis (n-words at a time)(Li (2008), Tetlock et al. (2008)). However, all the approaches in this array of one to n words have their share of critics due to the presence of multiple adverbs and adjectives with a corresponding word. For example, the phrase ”not so good financial year” will lead to incorrect tone quantification for one word to ngram (n = 2) approach as the corresponding noun phrase “financial year” has three adverbs/adjectives. Also, the number of adverbs/adjectives can vary widely in any text (including central bank communication). In this work, we suggest an alternate solution to this issue by identifying a sentence as a base unit of tone quantification. Also, we assign appropriate weights to adverbs/adjectives (“valence shifters” henceforth) to ensure each cluster of noun phrases is quantified correctly within a sentence. To the best of our knowledge, this is the first attempt at the use of valence shifters to financial text.

Pagination

118p.

Copyright

Indian Institute of Management Bangalore

Document Type

Dissertation

DAC Chairperson

Basu, Sankarshan

DAC Members

Thampy, Ashok; Anand, Abhinav

Type of Degree

Ph.D.

Relation

DIS-IIMB-FPM-P21-15

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