ControversyBERT:Detecting Social Controversies and their Impact on Stock Returns

Lohre, Harald and Nolte, Sandra and Ranganathan, Ananthalakshmi and Rother, Carsten and Steiner, Margit (2023) ControversyBERT:Detecting Social Controversies and their Impact on Stock Returns. Journal of Impact & ESG Investing. ISSN 2693-1982

Full text not available from this repository.

Abstract

Companies linked to social controversies experience an average drop in returns of more than 200 basis points in the days surrounding the outbreak of controversial news. To identify such social controversy events we build ControversyBERT, a large language model trained on a sample of 1 million news headlines to detect reports of controversial incidents in daily news feeds. Among the eight examined social dimensions, controversies surrounding violations of product safety standards, labour standards, as well as consumer data safety and data privacy breaches significantly affect firm returns. The corresponding stock price reaction is negative in all considered geographic regions and is largely driven by small to medium market capitalization companies for which information diffusion is slowest. Even though the build-up in controversy news sees most of the negative price reaction occurring before the event, our controversy indicator can help avoiding about 30% of the overall effect by the timely divesting holdings in the identified companies.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Impact & ESG Investing
Uncontrolled Keywords:
Research Output Funding/yes_externally_funded
Subjects:
ID Code:
199537
Deposited By:
Deposited On:
27 Jul 2023 15:40
Refereed?:
Yes
Published?:
Published
Last Modified:
12 Sep 2023 00:01