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Fewer Verbs and Nouns in Financial Reporting Could Predict Stock Market Bubble, Study Shows

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Stock market

Photo courtesy of University College Dublin

University College Dublin researchers say the stock market can be predicted by the way financial commentators describe market activity.

The researchers examined 18,000 articles published by the Financial Times, the New York Times, and the BBC, plotting the way words were used from 2006 to 2010 into a computer model. The team found that there was increasing convergence in language used to describe market activity, and many reporters began to use the same language ahead of the 2007 crash.

Immediately after the bubble, financial commentators began to describe market activity with a wider range of nouns and verbs. "Our analysis shows that trends in the use of words by financial journalists correlate closely with changes in the leading stock indices," says Dublin professor Mark 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 Dublin researcher Aaron Gerow.

From University College Dublin
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