Reading business news might do more than keep you informed.

It could help you manage your money.

That’s the finding from a new study by University of Auckland finance lecturer Dr Justin J. Case and Queensland University of Technology’s Professor Adam Clements.

They discovered that analysing articles from The Wall Street Journal can forecast stock market volatility better than commonly used models.

“Volatility is a common proxy for financial risk,” says Dr Case.

“By accurately forecasting this risk, investors can take strategic steps to protect their investments before market shifts occur.”

The team analysed more than 1.1 million articles published between 2000 and 2022.

Business School finance lecturer Dr Justin J. Case.

Using machine learning, they grouped news topics and linked them to high-frequency movements in the S&P 500 index.

Their results showed that news coverage is strongly related to market volatility.

News about stock market activity, economic shocks, financial institutions, and government policy were most relevant.

On the flip side, mergers and acquisitions were linked to lower volatility, suggesting greater investor confidence.

Sports news was also tied to calmer markets, possibly due to a distraction effect.

The researchers tested their method in a simulated investment strategy.

Returns improved when they adjusted investment exposure based on expected volatility from news, compared to traditional models.

They also tested ChatGPT’s ability to forecast volatility from headlines, but it was less accurate over longer timeframes.

“Our method allows for a more granular analysis of news text,” says Dr Case.

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