The Value of News

Abstract

We decompose a major business newspaper according to the topics it writes about, and show that the topics have predictive power for key economic variables and, especially noteworthy, for asset prices. Unexpected innovations to an aggregated news index, derived as a weighted average of the topics with the highest predictive scores, cause large and persistent economic fluctuations, a permanent increase in productivity, and are especially associated with financial markets, credit and borrowing. Unexpected innovations to asset prices, orthogonal to news shocks and labeled as noise, have only temporary positive effects.