ASR / WSJ Newsflow Indexes
Absolute Strategy Research (ASR) and the Wall Street Journal (WSJ) are now working together on the production and development of the Absolute Strategy / WSJ Newsflow indices. ASR is responsible for the production of the data and the analysis embodied in this research report. WSJ will simultaneously publish the data and provide independent commentary.
What do the ASR Macro NewsFlow Indexes measure?
The ASR Macro NewsFlow Indexes track the difference between the number of positive news stories and the number of negative news stories. Every month we search Factiva, the Dow Jones news database, for six key variables, and count the number of articles where these key words are found in a positive context and compare that to the number of stories where they are found in a negative context. One of the strengths of Factiva is that it has a long history which allows us to see how the net balance (i.e. the difference between the number of positive and negative stories) has moved over the past two decades. We can then compare each net balance with an actual economic indicator to verify that it tracks well. As well as the six key variables, we have also created a Composite NewsFlow Index (CNI) which provides an overall measure of economic surprise.
Can we compare the U.S. results with that of other countries?
Cross-country comparisons are possible but with one important qualification: all our searches are done in the English language. At first, we thought this would be a major problem, but the results for countries such as Japan and China have been quite good despite relying solely on English language sources for what is happening in those countries. Eventually we would like to expand our searches to include other languages as this would make the indices more robust.
What can investors and economy-watchers glean from the monthly indexes?
We believe that the ASR Macro NewsFlow Indexes are a good way of monitoring economic surprises, particularly surprises that journalists regard as sufficiently newsworthy to merit an article or report. Whereas we can all read one daily newspaper, such as the Wall Street Journal, it is not possible for us to read multiple newspapers from around the world. Because Factiva draws on an extensive range of different news sources, it allows us to see patterns. In effect what we have is a macro surprise indicator, curated by what journalists think are important and relevant.
The series do not lead the traditional data releases, but they provide a very timely tracking of the global economy. We normally publish the previous month’s results on the Tuesday after the US non-farm payroll release. The ASR Macro NewsFlow Indexes thus give us a cross check on economic growth, analyst estimate revisions to corporate earnings, revenue/sales, employment, inflation and the perception of monetary policy. We publish a global aggregate as well as six country/regional breakdowns. Interestingly, the Composite NewsFlow Indicators (the CNIs) provide an additional insight for asset allocators with a useful correlation to the year-on-year change in stocks versus bonds.
Are the indexes seasonally adjusted?
We do a simple seasonal adjustment of the results. We also adjust for the fact that there are more news sources on the Factiva database today than there were twenty years ago. An alternative approach would of course be to identify news sources that had been on Factiva over the entire period, but we feared that this might limit the sample size excessively.
What inspired the indexes?
Investment strategists have used simple macro word counts before. Indeed, one of the worst jobs for a summer intern was to be asked to go through back copies of the Wall Street Journal or Financial Times and count the number of references to ‘recession’ or ‘inflation’! But few people have systematically worked through 20 years of Factiva data and created series that so clearly track key economic variables. What makes ASR’s searches unusual is the way we have tried to add context, to try and sort the positive stories from the negative. After all, there is a big difference between going INTO recession – and coming OUT of recession – keyword search simply won’t pick that up that distinction. This is what makes the Factiva software so well suited to this task. What inspired us back in 2007 was what we saw as an untapped source of macroeconomic data, namely a news database curated by journalists, together with software that allowed us to interrogate that database going back twenty years. We saw the potential to create quantitative measures where no reliable data existed (e.g. for some emerging markets), as well as the scope to track interest in investment themes and for industrial sectors.
How have these indexes, looking back, tracked other long-established sentiment indexes as well as other rough measures of economic confidence, such as the S&P 500?
When we look at the current deck of Macro NewsFlow Indicators, we are astonished at how close some of the relationships are with some of the official economic data or with Markit PMI components. We believe the process we have developed has the potential to create similar indicators for stock market indices at both the country and sector level. In principle it should be possible to track the fundamental NewsFlow associated with the constituents of the Dow Jones Index or the S&P500. However, so far we have not yet attempted to create new measures of stock-market sentiment, but the potential is there.
Who to contact
For further information about the ASR/WSJ Newsflow Indices, please email email@example.com
Release dates for 2019
|Newsflow for the month of||Publication Date|
|Sep-19||Tues 8th October|
|Oct-19||Tues 5th November|
|Nov-19||Tues 10th December|