Monday, June 08, 2009

Analyzing Newspaper Reporting to Predict Economic Direction

Some Dow Jones colleagues are using text mining analysis across years of newspaper articles (back-tested to 1990) and have created an incredibly interesting analysis of how the media's reporting can predict the direction of the economy.

The new Dow Jones Economic Sentiment Indicator analyzes the coverage of the economy in a handful of influential newspapers to quantify economic sentiment.

According to the ESI's Web site

The ESI represents one of the most comprehensive and far-reaching examinations of media coverage as an economic indicator. [Back testing shows] the ESI clearly highlighted the risk that the U.S. economy was sliding into recession in 2001 and 2008 and suggests the indicator can help predict economic turning points as much as seven months in advance of other indicators.
Rob Passarella, the Director of Product Strategy for Algorithmic and Electronic Products at Dow Jones, blogs about this and other things.