Optimal Text-Based Time-Series Indices

We propose an approach to construct text-based time-series indices in an optimal way–typically, indices that maximize the contemporaneous relation or the predictive performance with respect to a target variable, such as inflation. We illustrate our methodology with a corpus of news articles from the Wall Street Journal by optimizing text-based indices focusing on tracking the VIX index and inflation expectations. Our results highlight the superior performance of our approach compared to existing indices.