Narratives from GPT-derived networks of news and a link to financial markets dislocations

Abstract

We introduce a novel framework to study the dynamics of news narratives, by leveraging GPT3.5 advanced text analysis capabilities and graph theory. In particular, we focus on a corpus of economic articles from The Wall Street Journal and dynamically extract the main topics of discussion over time, in a completely systematic and scalable fashion. As a simple application of the suggested approach, we show how the structure of such topics of discussion has a statistically significant relationship with the contemporaneous state of financial markets, which can be used to construct an investment strategy or monitor financial risks. Our work is based on the intrinsic ability of GPT models to track the context of sentences within a document, thanks to which we can accurately extract a ranking of the most important entities discussed within each article, and evaluate their entity-specific sentiments. Then, we create a graph for each week of data, in which nodes are the entities retrieved and edges are built from the co-occurrence of such entities within articles. Graph centrality measures are computed over time to track the most representative keywords of topics of discussion, which result in an accurate summary view of the evolution of economic narratives. Fuzzy community detection is finally used to cluster linked entities into a more detailed representation of topics. Such groups of entities are mapped to the related journal articles, which are in turn summarised to reach a highly nuanced and interpretable view of the topics discussed within each week. Linking the features of these topics to the relevant financial market time series, we find that high fragmentation within our networks’ communities relates to moments of financial markets dislocations (i.e. dates with unusually high volatility across asset classes). This result should thus motivate stronger effort within financial research to move beyond ubiquitous sentiment analysis of news and delve deeper into broader and more holistic studies of textual data.