Decoding News: How Media Risk and Ambiguity Shape CDS Spreads

[en] We introduce a novel method to quantify perceived global risk and ambiguity in media attention using content analysis. First, we apply structural topic modeling to risk-related news articles to identify distinct sources of uncertainty. We define ambiguity in attention as the variability in the distribution of topic probabilities across articles—that is, the extent to which media coverage diverges in its focus on different topics. In contrast, perceived risk is measured as the share of articles that assign a particular topic as their primary focus. We then examine whether these measures of perceived global risk and ambiguity in attention can explain changes in credit default swap (CDS) spreads. Our results show that greater ambiguity in news media attention is associated with a decrease in CDS spreads by up to 5.9%, while higher perceived risk corresponds to an increase of up to 4.9%. These findings highlight the role of media-driven uncertainty in shaping investor behavior and market risk perceptions.

Disciplines :

Finance

Author, co-author :

Sadoghi, Amirhossein

Santi, Caterina ; Université de Liège - ULiège > HEC Liège Research > HEC Liège Research: Financial Management for the Future

Language :

English

Title :

Decoding News: How Media Risk and Ambiguity Shape CDS Spreads

Publication date :

April 2026

Journal title :

Journal of Economic Dynamics and Control

ISSN :

0165-1889

Publisher :

Elsevier BV

Volume :

187

Issue :

105322

Peer reviewed :

Peer Reviewed verified by ORBi

Additional URL :

https://api.elsevier.com/content/article/PII:S0165188926000680?httpAccept=text/xml

Available on ORBi :

since 13 April 2026

Statistics

Number of views

46 (0 by ULiège)

Number of downloads

0 (0 by ULiège)

More statistics

Scopus citations^®

Scopus citations^®
without self-citations

OpenCitations

OpenAlex citations

Bibliography

Acharya, V.V., Johnson, T.C., Insider trading in credit derivatives. J. Financ. Econ. 84:1 (2007), 110–141.
Adämmer, P., Schüssler, R.A., Forecasting the equity premium: mind the news!. Rev. Financ. 24:6 (2020), 1313–1355.
Anderson, E.W., Ghysels, E., Juergens, J.L., The impact of risk and uncertainty on expected returns. J. Financ. Econ. 94:2 (2009), 233–263.
Attaoui, S., Cao, W., Liu, H., Optimal capital structure, ambiguity aversion, and leverage puzzles. J. Econ. Dyn. Control, 129, 2021, 104176.
Augustin, P., Izhakian, Y., Ambiguity, volatility, and credit risk. Rev. Financ. Stud. 33:4 (2020), 1618–1672.
Augustin, P., Sokolovski, V., Subrahmanyam, M.G., Tomio, D., In sickness and in debt: the COVID-19 impact on sovereign credit risk. J. Financ. Econ. 143:3 (2022), 1251–1274.
Bai, J., Wu, L., Anchoring credit default swap spreads to firm fundamentals. J. Financ. Quant. Anal. 51:5 (2016), 1521–1543.
Baker, S.R., Bloom, N., Davis, S., Renault, T., Twitter-derived measures of economic uncertainty. Unpublished Working paper, 2021.
Baker, S.R., Bloom, N., Davis, S.J., Measuring economic policy uncertainty. Q. J. Econ. 131:4 (2016), 1593–1636.
Ball-Rokeach, S.J., DeFleur, M.L., A dependency model of mass-media effects. Communic. Res. 3:1 (1976), 3–21.
Bartram, S.M., Conrad, J., Lee, J., Subrahmanyam, M.G., Credit default swaps around the world. Rev. Financ. Stud. 35:5 (2022), 2464–2524.
Ben-Rephael, A., Cookson, J.A., Izhakian, Y., Do i really want to hear the news? public information arrival and investor beliefs. SSRN eLibrary, 3631760, 2022.
Benoit, K., Muhr, D., Watanabe, K., 2020. stopwords: Multilingual Stopword Lists. R package version 2.0.
Berndt, A., Douglas, R., Duffie, D., Ferguson, M., Corporate credit risk premia. Rev. Financ. 22:2 (2018), 419–454.
Bharath, S.T., Shumway, T., Forecasting default with the merton distance to default model. Rev. Financ. Stud. 21:3 (2008), 1339–1369.
Black, F., Scholes, M., The pricing of options and corporate liabilities. J. Polit. Econ. 81, 637–654.
Blei, D.M., Ng, A.Y., Jordan, M.I., Latent dirichlet allocation. J. Mach. Learn. Res. 3 (2003), 993–1022.
Bongaerts, D., De Jong, F., Driessen, J., Derivative pricing with liquidity risk: theory and evidence from the credit default swap market. J. Finance 66:1 (2011), 203–240.
Bossaerts, P., Ghirardato, P., Guarnaschelli, S., Zame, W.R., Ambiguity in asset markets: theory and experiment. Rev. Financ. Stud. 23:4 (2010), 1325–1359.
Brenner, M., Izhakian, Y., Asset prices and ambiguity: empirical evidence. J. Financ. Econ. 130 (2018), 503–531.
Caldara, D., Iacoviello, M., Measuring geopolitical risk. Am. Econ. Rev. 112:4 (2022), 1194–1225.
Campbell, J.Y., Taksler, G.B., Equity volatility and corporate bond yields. J. Finance 58:6 (2003), 2321–2350.
Cao, C., Yu, F., Zhong, Z., The information content of option-implied volatility for credit default swap valuation. J. Financ. Market. 13:3 (2010), 321–343.
Cao, H.H., Wang, T., Zhang, H.H., Model uncertainty, limited market participation, and asset prices. Rev. Financ. Stud. 18:4 (2005), 1219–1251.
Chang, J., Gerrish, S., Wang, C., Boyd-Graber, J., Blei, D., Reading tea leaves: how humans interpret topic models. Adv. Neural Inf. Process. Syst., 22, 2009.
Chen, C.Y.-H., Fengler, M.R., Liu, Y., Media-expressed tone, option characteristics, and stock return predictability. J. Econ. Dyn. Control, 134, 2022, 104285.
Chong, D., Druckman, J.N., Framing theory. Annu. Rev. Polit. Sci. 10:1 (2007), 103–126.
Collin-Dufresn, P., Goldstein, R.S., Martin, J.S., The determinants of credit spread changes. J. Finance 56:6 (2001), 2177–2207.
Da, Z., Engelberg, J., Gao, P., In search of attention. J. Finance 66:5 (2011), 1461–1499.
Devlin, J., Chang, M.-W., Lee, K., Toutanova, K., 2018. Bert: Pre-training of deep bidirectional transformers for language understanding. arxiv: 1810.04805.
Drechsler, I., Uncertainty, time-varying fear, and asset prices. J. Finance 68:5 (2013), 1843–1889.
Duffie, D., Singleton, K.J., Modeling term structures of defaultable bonds. Rev. Financ. Stud. 12:4 (1999), 687–720.
Engle, R.F., Giglio, S., Kelly, B., Lee, H., Stroebel, J., Hedging climate change news. Rev. Financ. Stud. 33:3 (2020), 1184–1216.
Epstein, L.G., Schneider, M., Ambiguity, information quality, and asset pricing. J. Finance 63:1 (2008), 197–228.
Ericsson, J., Jacobs, K., Oviedo, R., The determinants of credit default swap premia. J. Financ. Quant. Anal. 44:1 (2009), 109–132.
Faccini, R., Matin, R., Skiadopoulos, G., Dissecting climate risks: are they reflected in stock prices?. J. Bank. Finance, 155, 2023, 106948.
Fama, E.F., French, K.R., Industry costs of equity. J. Financ. Econ. 43:2 (1997), 153–193.
Friberg, R., Seiler, T., Risk and ambiguity in 10-ks: an examination of cash holding and derivatives use. J. Corp. Finance 45 (2017), 608–631.
Fu, R., Melenberg, B., Schweizer, N., Comment on “a theoretical foundation of ambiguity measurement”[j. econ. theory 187 (2020) 105001]. J. Econ. Theory, 207, 2023, 105573.
Gavriilidis, K., Measuring climate policy uncertainty. Available at SSRN 3847388, 2021.
Gentzkow, M., Shapiro, J.M., Media bias and reputation. J. Polit. Econ. 114:2 (2006), 280–316.
Gentzkow, M., Shapiro, J.M., What drives media slant? evidence from US daily newspapers. Econometrica 78:1 (2010), 35–71.
Glasserman, P., Mamaysky, H., Does unusual news forecast market stress?. J. Financ. Quant. Anal. 54:5 (2019), 1937–1974.
Granger, C.W.J., Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 1969, 424–438.
Griffiths, T.L., Steyvers, M., Finding scientific topics. Proc. Natl. Acad. Sci. 101:suppl_1 (2004), 5228–5235.
Gurun, U.G., Butler, A.W., Don'T believe the hype: local media slant, local advertising, and firm value. J. Finance 67:2 (2012), 561–598.
Hannigan, T.R., Haans, R.F.J., Vakili, K., Tchalian, H., Glaser, V.L., Wang, M.S., Kaplan, S., Jennings, P.D., Topic modeling in management research: rendering new theory from textual data. Acad. Manag. Annal. 13:2 (2019), 586–632.
Huang, A.H., Lehavy, R., Zang, A.Y., Zheng, R., Analyst information discovery and interpretation roles: a topic modeling approach. Manag. Sci. 64:6 (2018), 2833–2855.
Illeditsch, P.K., Ambiguous information, portfolio inertia, and excess volatility. J. Finance 66:6 (2011), 2213–2247.
Izhakian, Y., A theoretical foundation of ambiguity measurement. J. Econ. Theory, 187, 2020, 105001.
Izhakian, Y., Yermack, D., Risk, ambiguity, and the exercise of employee stock options. J. Financ. Econ. 124:1 (2017), 65–85.
Izhakian, Y.Y., A theoretical foundation of ambiguity measurement: a reply. Available at SSRN 5360193, 2024.
Izzeldin, M., Muradoğlu, Y.G., Pappas, V., Petropoulou, A., Sivaprasad, S., The impact of the russian-ukrainian war on global financial markets. Int. Rev. Financ. Anal., 87, 2023, 102598.
Knight, F.H., Risk, uncertainty and profit. Vol. 31, 1921, Houghton Mifflin.
Lee, J., Naranjo, A., Velioglu, G., When do CDS spreads lead? rating events, private entities, and firm-specific information flows. J. Financ. Econ. 130:3 (2018), 556–578.
Lewbel, A., Using heteroscedasticity to identify and estimate mismeasured and endogenous regressor models. J. Bus. Econ. Stat. 30:1 (2012), 67–80.
Lin, Q., Sun, X., Zhou, C., Horizon-unbiased investment with ambiguity. J. Econ. Dyn. Control, 114, 2020, 103896.
Loughran, T., McDonald, B., When is a liability not a liability? textual analysis, dictionaries, and 10-ks. J. Finance 66:1 (2011), 35–65.
McCombs, M.E., Shaw, D.L., The agenda-setting function of mass media. Public Opin. Q. 36:2 (1972), 176–187.
Merton, R.C., On the pricing of corporate debt: the risk structure of interest rates. J. Finance 29:2 (1974), 449–470.
Nyman, R., Kapadia, S., Tuckett, D., News and narratives in financial systems: exploiting big data for systemic risk assessment. J. Econ. Dyn. Control, 127, 2021, 104119.
Porter, M.F., An algorithm for suffix stripping. Program 14:3 (1980), 130–137.
Roberts, M.E., Stewart, B.M., Tingley, D., Stm: an r package for structural topic models. J. Stat. Softw. 91 (2019), 1–40.
Roberts, M.E., Stewart, B.M., Tingley, D., Lucas, C., Leder-Luis, J., Gadarian, S.K., Albertson, B., Rand, D.G., Structural topic models for open-ended survey responses. Am. J. Pol. Sci. 58:4 (2014), 1064–1082.
Sarkissian, S., Schill, M.J., Cross-listing waves. J. Financ. Quant. Anal. 51:1 (2016), 259–306.
Shiller, R.J., Narrative economics. Am. Econ. Rev., 107(4), 2017.
Siriwardane, E.N., Limited investment capital and credit spreads. J. Finance 74:5 (2019), 2303–2347.
Slovic, P., Informing and educating the public about risk. Risk Anal. 6:4 (1986), 403–415.
Tetlock, P.C., Giving content to investor sentiment: the role of media in the stock market. J. Finance 62:3 (2007), 1139–1168.
Tetlock, P.C., Saar-Tsechansky, M., Macskassy, S., More than words: quantifying language to measure firms’ fundamentals. J. Finance 63:3 (2008), 1437–1467.
Williams, C.D., Asymmetric responses to earnings news: a case for ambiguity. Account. Rev. 90:2 (2015), 785–817.
Zhang, B.Y., Zhou, H., Zhu, H., Explaining credit default swap spreads with the equity volatility and jump risks of individual firms. Rev. Financ. Stud. 22:12 (2009), 5099–5131.