Tell Me a Story: Quantifying Economic Narratives and Their Role during COVID-19
76 Pages Posted: 20 Dec 2020 Last revised: 3 Mar 2021
Date Written: December 19, 2020
We retrieve the most salient COVID-19 narratives and examine their relation to behavioral, political, financial, and real economic conditions that characterize the pandemic period. Using textual analysis, we elicit thirteen narratives from daily and real-time open-ended questionnaires presented to a large number of US stockholders prior to and during the first wave of the pandemic (February through June, 2020) and quantify their propagation and tone over time. The narratives span distinct aspects that define the period, e.g., "supply disruption", "investor fear", "stay at home", "infection worry", and "fiscal and monetary policy intervention". They have strong behavioral implications for human mobility at their homes, workplaces, and shops, and partisan disagreement about the stock market is significantly reduced whenever policy-related narratives prevail. A network analysis shows that narratives drive unexpected fluctuations in the economy and financial markets and that they are themselves shaped by these. Narratives also manifest in expected returns and marginal utility as they carry significant risk premia in financial markets.
Keywords: Narrative economics, COVID-19, textual analysis, network analysis, Google Mobility, latent Dirichlet allocation, risk premia, partisan disagreement
JEL Classification: C55, D91, E44, E71
Suggested Citation: Suggested Citation