Chart: Vocabulary of Stock Coverage Can Predict Stock Prices

Researchers look at how business reporters talk about markets as an indicator

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A group of computer scientists at University College Dublin presented a study today showing a curious pattern involving financial journalism and stock markets. An analysis of 18,000 online articles from three heavyweights in financial reporting--The New York Times, theĀ Financial Times, and the BBC--revealed that journalists tended to use more of the same nouns and verbs as the market bubble preceding the 2008 financial crisis grew. The researchers say that business reporters began using similar terminology--writing, for example, that stocks "rose again," "scaled new heights," or "soared"--in the lead up to the economic meltdown. The analysts characterized reporters as acting in a "'herd-like' fashion" during the bubble. Not exactly glowing praise for business journalists.

In the chart above we can see the the red line, which represents that rate of convergence in word choice among journalists, closely following the blue line, which is the Dow Jones Industrial Average, from 2006 to 2010, suggesting a high degree of correlation between the two measures. Using Internet data to predict the stock market isn't novel. Google searches, for example, have been shown to be highly predictive of stock activity.

This article is from the archive of our partner The Wire.