DP20308 Beyond Words: Fed Chairs’ Voice Sentiments and US Bank Stock Price Crash Risk
Building on the methodology of Gorodnichenko et al. (2023), we reconstruct and propose a novel measure that quantifies the voice sentiment of the Chair of the Federal Reserve press conference responses and examine its impact on the stock price crash risk of U.S. banks. We find that a more positive vocal sentiment, indicative of happiness, significantly reduces banks’ ex-ante crash risk, whereas negative emotions, such as sadness and anger, amplify it. These effects are economically meaningful and robust across various specifications, alternative crash risk proxies, and endogeneity checks, including an instrumental variables (IV) strategy and an entropy balancing approach. Additionally, the emotional sentiment has asymmetric effects on stock price crash risk, depending on bank size. Our findings suggest that, beyond the textual content of monetary policy statements, the emotional delivery of central bank communication plays a critical role in shaping financial stability outcomes, providing empirical evidence for the theoretical channels of uncertainty, systemic risk and investor sentiment.
