Topic: Risk Exposures from Risk Disclosures: What They Said and How They Said It

Speaker: Seth Pruitt, Associate Professor, Carey School of Business, Arizona State University

Time: 10:00am-11:30am, October 16

Location: 4-101

Abstract:

We extract information from 10-K risk disclosures: topic models measure what is discussed, and context models measure how it is discussed. We find that both contain significant predictive information about future aggregate risk exposures, even controlling for (structured) firm characteristics, and that this information is economically valuable. For market exposure, only management's choice of context is useful; for other factors, tradable and nontradable, both context and topic information is useful. Further, we show that topics and contexts are statistically distinct. We present evidence that management's discussion helps to predict some future corporate actions, which in turn can alter the firm's exposure to aggregate risk.

Speaker Biography:

Seth Pruitt is an associate professor in the Department of Finance at the W. P. Carey School of Business at Arizona State University. Prior to this, he was senior economist at the Federal Reserve Board of Governors. He received his doctorate in economics from the University of California, San Diego in 2008. His research focuses on asset pricing, macroeconomics, and econometrics and has been published in leading journals such as American Economic Review, Journal of Finance, Journal of Financial and Quantitative Analysis, and Journal of Financial Economics. His awards include: 2019 Best Paper in JFE, Fama/DFA (First Prize); 2016 Best Paper in JFE, Fama/DFA (First Prize); 2012 AQR Insight Award (First Prize).