Quantifying Investor Narratives and Their Role during COVID-19

94 Pages Posted: 20 Dec 2020 Last revised: 22 Dec 2022

See all articles by Daniel Borup

Daniel Borup

Aarhus University, CREATES, DFI

Jorge Wolfgang Hansen

Aarhus University - Department of Economics and Business Economics; Aarhus University; CREATES; DFI

Benjamin Liengaard

Aarhus University - Department of Economics and Business Economics; Aarhus University; Aarhus University - CREATES

Erik Christian Montes Schütte

Aarhus University; Aarhus University - CREATES; DFI

Date Written: December 19, 2020

Abstract

This paper elicits and quantifies narratives from open-ended surveys sent daily to U.S. stockholders during the first wave of the COVID-19 pandemic. Using textual analysis, we extract thirteen narratives and measure their prevalence over time. A validation analysis confirms the behavioral and economic relevance of the retrieved narratives. Moreover, we find that the narratives contain predictive information for future excess stock and bond returns, and this predictability remains when controlling for contemporaneous information stemming from news and social media. Finally, we find evidence that political identity is reflected in the narrative tone.

Keywords: COVID-19, textual analysis, latent Dirichlet allocation, narrative economics

JEL Classification: C55, D91, E44, E71

Suggested Citation

Borup, Daniel and Hansen, Jorge Wolfgang and Liengaard, Benjamin and Liengaard, Benjamin and Liengaard, Benjamin and Schütte, Erik Christian Montes and Schütte, Erik Christian Montes, Quantifying Investor Narratives and Their Role during COVID-19 (December 19, 2020). Available at SSRN: https://ssrn.com/abstract=3752116 or http://dx.doi.org/10.2139/ssrn.3752116

Daniel Borup (Contact Author)

Aarhus University, CREATES, DFI ( email )

School of Business and Social Sciences
Fuglesangs Alle 4
Aarhus V, 8210
Denmark

Jorge Wolfgang Hansen

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

DFI ( email )

Benjamin Liengaard

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

Erik Christian Montes Schütte

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

HOME PAGE: http://sites.google.com/view/christian-montes-schutte/home

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

DFI ( email )

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