One of the key issues in finance is whether sentiment is related to stock prices. Sentiment can influence prices via its effect on investors’ moods. A recent innovation in this space has been to perform text analysis on newspaper articles. A recent technique that is applied for this purpose is supervised Latent Dirichlet Allocation (sLDA), which allows articles to be scored based on topics such as War, Conflict, Financial Crisis, and so on. This work clarifies some issues surrounding two research papers published and forthcoming on the subject of whether war discourse in the New York Times predicts returns. One paper indicates that war discourse positively predicts next-month ahead market returns. The rationale is that the sentiment surrounding war discourse suppresses current prices and thus increases future expected returns. The second paper argues that loadings (betas) on the war factor command negative premia in the cross-section of stock returns. The rationale is that people require lower returns on stocks that form a hedge against the war factor. In this paper, I take a deeper look at the papers’ findings. I argue that authors are making judgment calls that need to be discussed and disclosed, and that the results are not robust.
| Published in | Journal of Finance and Accounting (Volume 13, Issue 5) |
| DOI | 10.11648/j.jfa.20251305.12 |
| Page(s) | 232-235 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2025. Published by Science Publishing Group |
Factors, Risk Premia, Stock Returns
| [1] | Engle, Robert F., 2016, Dynamic conditional beta, Journal of Financial Econometrics 14, 643-667. |
| [2] | Fama, Eugene F., and Kenneth R. French, 1993, Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3-56. |
| [3] | Fama, Eugene F., and Kenneth R. French, 1997, Industry costs of equity, Journal of Financial Economics 43, 153-193. |
| [4] | Fama, Eugene F., and James D. MacBeth, 1973, Risk, return, and equilibrium: Empirical tests, Journal of Political Economy 81, 607-636. |
| [5] | Hirshleifer, David, Dat Mai, and Kuntara Pukthuanthong, 2025a, War discourse and disaster premium: 160 years of evidence from the stock market, Review of Financial Studies 38, 457-506. |
| [6] | Hirshleifer, David, Dat Mai, and Kuntara Pukthuanthong, 2025b, War discourse and the cross section of expected stock returns, Journal of Finance, forthcoming. |
| [7] | Hou, Kewei, Chen Xue, and Lu Zhang, 2020, Replicating anomalies, Review of Financial Studies 33, 2019-2133. |
| [8] | McLean, R David, and Jeffrey Pontiff, 2016, Does academic research destroy stock return predictability?, Journal of Finance 71, 5-32. |
| [9] | Newey, Whitney K., and Kenneth D. West, 1987, A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix, Econometrica 55, 703-708. |
| [10] | Shanken, Jay, 1992, On the estimation of beta-pricing models, Review of Financial Studies 5, 1-33. |
APA Style
Subrahmanyam, A. (2025). War Discourse and Financial Markets: Some Concerns. Journal of Finance and Accounting, 13(5), 232-235. https://doi.org/10.11648/j.jfa.20251305.12
ACS Style
Subrahmanyam, A. War Discourse and Financial Markets: Some Concerns. J. Finance Account. 2025, 13(5), 232-235. doi: 10.11648/j.jfa.20251305.12
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.jfa.20251305.12,
author = {Avanidhar Subrahmanyam},
title = {War Discourse and Financial Markets: Some Concerns
},
journal = {Journal of Finance and Accounting},
volume = {13},
number = {5},
pages = {232-235},
doi = {10.11648/j.jfa.20251305.12},
url = {https://doi.org/10.11648/j.jfa.20251305.12},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20251305.12},
abstract = {One of the key issues in finance is whether sentiment is related to stock prices. Sentiment can influence prices via its effect on investors’ moods. A recent innovation in this space has been to perform text analysis on newspaper articles. A recent technique that is applied for this purpose is supervised Latent Dirichlet Allocation (sLDA), which allows articles to be scored based on topics such as War, Conflict, Financial Crisis, and so on. This work clarifies some issues surrounding two research papers published and forthcoming on the subject of whether war discourse in the New York Times predicts returns. One paper indicates that war discourse positively predicts next-month ahead market returns. The rationale is that the sentiment surrounding war discourse suppresses current prices and thus increases future expected returns. The second paper argues that loadings (betas) on the war factor command negative premia in the cross-section of stock returns. The rationale is that people require lower returns on stocks that form a hedge against the war factor. In this paper, I take a deeper look at the papers’ findings. I argue that authors are making judgment calls that need to be discussed and disclosed, and that the results are not robust.
},
year = {2025}
}
TY - JOUR T1 - War Discourse and Financial Markets: Some Concerns AU - Avanidhar Subrahmanyam Y1 - 2025/10/27 PY - 2025 N1 - https://doi.org/10.11648/j.jfa.20251305.12 DO - 10.11648/j.jfa.20251305.12 T2 - Journal of Finance and Accounting JF - Journal of Finance and Accounting JO - Journal of Finance and Accounting SP - 232 EP - 235 PB - Science Publishing Group SN - 2330-7323 UR - https://doi.org/10.11648/j.jfa.20251305.12 AB - One of the key issues in finance is whether sentiment is related to stock prices. Sentiment can influence prices via its effect on investors’ moods. A recent innovation in this space has been to perform text analysis on newspaper articles. A recent technique that is applied for this purpose is supervised Latent Dirichlet Allocation (sLDA), which allows articles to be scored based on topics such as War, Conflict, Financial Crisis, and so on. This work clarifies some issues surrounding two research papers published and forthcoming on the subject of whether war discourse in the New York Times predicts returns. One paper indicates that war discourse positively predicts next-month ahead market returns. The rationale is that the sentiment surrounding war discourse suppresses current prices and thus increases future expected returns. The second paper argues that loadings (betas) on the war factor command negative premia in the cross-section of stock returns. The rationale is that people require lower returns on stocks that form a hedge against the war factor. In this paper, I take a deeper look at the papers’ findings. I argue that authors are making judgment calls that need to be discussed and disclosed, and that the results are not robust. VL - 13 IS - 5 ER -
Anderson Graduate School of Management, University of California at Los Angeles, Los Angeles, United States
Information