Does unusual news forecast market stress?

We find that an increase in the "unusualness" of news with negative sentiment predicts an increase in stock market volatility. Similarly, unusual positive news forecasts lower volatility. Our analysis is based on more than 360,000 articles on 50 large financial companies, published in 1996–2014. Unusualness interacted with sentiment forecasts volatility at both the company-specific and aggregate level. These effects persist for several months. Furthermore, unusual news is reflected in volatility more slowly at the aggregate than at the company-specific level. The observed behavior of volatility in our analysis can be explained by attention constraints on investors.