We use a topic modeling algorithm and sentiment scoring methods to construct a novel metric to use as a leading indicator in recession prediction models. We hypothesize that due to non-instantaneous information flows, the inclusion of such a sentiment indicator  derived purely from unstructured news data  will improve our capabilities to forecast future recessions  . We go on to show that the use of this proposed metric, even when included with consumer survey data, helps improve model performance significantly. This metric, in combination with consumer survey data, S P 500 returns, and the yield curve, produces forecasts that significantly outperform models of higher complexity, containing traditional economic indicators .
In the following paper, we use a topic modeling algorithm and sentiment scoring methods to construct a novel metric that serves as a leading indicator in recession prediction models. We hypothesize that the inclusion of such a sentiment indicator , derived purely from unstructured news data , will improve our capabilities to forecast future recessions because it provides a direct measure of the polarity of the information consumers and producers are exposed to . We go on to show that the inclusion of our proposed news sentiment indicator, with traditional sentiment data, such as the Michigan Index of Consumer Sentiment and the Purchasing Manager's Index, and common factors derived from a large panel of economic and financial indicators helps improve model performance significantly .
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due to non-instantaneous information flows,
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because it provides a direct measure of the polarity of the information consumers and producers are exposed to
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use of this proposed metric, even when included with consumer survey data, helps improve model performance significantly. This metric, in combination with consumer survey data, S
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P 500 returns, and the yield curve, produces forecasts that significantly outperform models of higher complexity, containing traditional economic indicators
inclusion of our proposed news sentiment indicator, with traditional sentiment data, such as the Michigan Index of Consumer Sentiment and the Purchasing Manager's Index, and common factors derived from a large panel of economic and financial indicators helps improve model performance significantly