The 50th Frontier Forum for Digital Technology and Finance

Abstract：

We introduce a large language model-based sentiment analysis framework (LLM-MESA) that enables fine-grained, entity-specific measurement of sentiment in financial texts. Applying this method to mutual fund manager reports, we extract expectations regarding equities, the macroeconomy, and bonds, providing the first evidence on how institutional stock market sentiment predicts crash risk. We find that managers’ optimistic equity outlooks significantly increase crash risk, indicating that institutional forecasts embed non-rational sentiment. This effect is concentrated among lower-skill funds, when macroeconomic expectations are pessimistic, and when bond market views are optimistic. Mediation analysis shows that optimism amplifies institutional herding and attracts sentiment-driven retail investors, thereby exacerbating crash risk. Our study demonstrates the value of LLM-MESA for financial text analysis, advances understanding of the mechanism linking institutional sentiment to crash risk and contributes to the debate on whether institutional investors stabilize or destabilize markets.

Speaker Introduction：

Jia Liu, Fellow of the British Academy of Management, Professor of Accounting and Finance at the University of Portsmouth. She obtained her PhD from the University of Birmingham, UK, and previously held academic positions at the University of Leeds and the University of Salford.Her research interests include corporate finance, behavioral finance, financial markets, risk management, fintech, big data, accounting reporting and disclosure, and sustainability.She has published over 80 academic papers in leading international journals in finance, accounting, and management, including nearly 20 in ABS-4 and FT50 journals; and has published monographs on corporate governance, sustainability, and decision-making. She has received "Best Paper Awards" from the European Management Journal (EMJ), the British Academy of Management (UK), the Southwestern Finance Association (USA), and the Eurasian Business and Economics Society (EBES). Her research has been featured and covered by various media outlets, including the renowned The Conversation, The Washington Post, and NASDAQ Stock Exchange.