Fewer verbs and nouns in financial reporting could predict stock market bubble, study shows

Jul 18, 2011

When the language used by financial analysts and reporters becomes increasingly similar the stock market may be overheated, say scientists.

After examining 18,000 online articles published by the Financial Times, The New York Times, and the BBC, have discovered that the and used by financial commentators converge in a 'herd-like' fashion in the lead up to a stock market bubble. Immediately afterwards, the language disperses.

The findings presented at the International Joint Conference on , Barcelona, Spain, on Tuesday 19 July 2011, show that the trends in the use of words by financial journalists correlate closely with changes in the leading stock indices.

"Our analysis shows that trends in the use of words by financial journalists correlate closely with changes in the leading stock indices - the DJI, the NIKKEI-225, and FTSE-100," says Professor Mark Keane, Chair of Computer Science in University College Dublin, who was involved in the research.

"By plotting the distributions of words used in financial articles published online between 2006 and 2010 into a , we were able to identify what we call 'verb convergence' and 'noun convergence – where the language used by financial journalists shows converging agreement."

"Our study shows that reporters converge on the same language - 'stocks rose again', 'scaled new heights', or 'soared' - as their commentaries became more uniformly positive in the lead up to the 2007 crash."

"They also appear to refer to a smaller-than-usual set of market events – presumably because of an increased fixation on a small number of rapidly rising stocks," explains Professor Keane.

"Google predicted car sales from analyses of search queries, and the Amazon book recommender system captures consumer preferences by correlating book titles, so why not listen to the language used by financial commentators to see if it could help predict the stock market," says Aaron Gerow, who completed the research as part of his MSc in Computer Science at University College Dublin.

Explore further: Economist probes the high cost of health care

Provided by University College Dublin

5 /5 (5 votes)
add to favorites email to friend print save as pdf

Related Stories

Google queries and stock market volumes related

Nov 15, 2010

Financial markets and the 'swarm intelligence' of the internet are linked. This is the result of a joint study in which search engine query data are analyzed by Tobias Preis and Daniel Reith of Johannes Gutenberg University ...

2009: the Year of Twitter

Nov 30, 2009

The year has not yet ended but Microsoft says "Twitter" was among the top searches of 2009 on its new search engine Bing and a company which monitors language has crowned it the top word of the year.

Market changes affect risk tolerance, study finds

Sep 28, 2010

As the U.S. economy continues to lag, many investors remain wary about taking risks with the stock market. Now, researchers at MU have concluded that this attitude toward investment risk-taking is more than just a recent ...

Recommended for you

Economist probes the high cost of health care

Mar 27, 2015

When Zack Cooper arrived at Yale as assistant professor of public health and economics, he gained access to a first-of-its-kind dataset. Working with the non-profit Health Care Cost Institute, Cooper and ...

Cash remains king in Chile but its days could be numbered

Mar 26, 2015

For more than a year now, Chileans have endured a crisis of cash access. Despite global moves toward new forms of payment such as contactless and mobile transfers, the crisis in Chile highlights the continuing ...

Will you ever pay off your student loan?

Mar 25, 2015

Would-be participants of higher education must be given full and transparent advice before they accumulate debts as students that follow them into the workplace, according to a report published in the International Journal of ...

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.