Monitoring Narratives: An Application to the Equity Market

38 Pages Posted: 6 May 2022

See all articles by Pascal Blanqué

Pascal Blanqué

Amundi Institute

Mohamed Ben Slimane

Amundi Institute

Amina Cherief

Amundi Institute

Théo Le Guenedal

CREST-ENSAE; Amundi Institute

Takaya Sekine

Amundi Institute

Lauren Stagnol

Amundi Institute

Date Written: April 7, 2022

Abstract

In this research, we show that variables from the Global Database of Events, Language and Tone (GDELT) convey significant informational content that can improve on a purely macroeconomic approach when modeling the US equity market. Based on these metrics, we construct timeseries that represent and measure how some narratives that appear to be battling each other are changing in the current market environment. Namely we are able to appraise the strength of the roaring 20s, back to the 70s, secular stagnation and monetary economic narratives, but we also add up topical societal narratives related to environmental or social aspects, as well as a geopolitical risk narrative. We formalize an informational content framework and show that including quantitative signals that translate into qualitative stories brings added value when determining the stock market’s movement. Indeed, on top of higher explanatory power from their underlying variables, narratives can improve the diversification of standard macroeconomic models and enhance their quality. As such, our results advocate for a close monitoring of narratives in financial markets.

Keywords: macroeconomics, narrative economics, FRED, GDELT project, natural language processing, sentiment, financial markets

JEL Classification: D91, E44, E71

Suggested Citation

Blanqué, Pascal and Ben Slimane, Mohamed and Cherief, Amina and Le Guenedal, Théo and Sekine, Takaya and Stagnol, Lauren, Monitoring Narratives: An Application to the Equity Market (April 7, 2022). Available at SSRN: https://ssrn.com/abstract=4081958 or http://dx.doi.org/10.2139/ssrn.4081958

Pascal Blanqué

Amundi Institute ( email )

90 Boulevard Pasteur
Paris, 75015
France

Mohamed Ben Slimane

Amundi Institute ( email )

90 Boulevard Pasteur
Paris, 75015
France

Amina Cherief

Amundi Institute ( email )

90 Boulevard Pasteur
Paris, 75015
France

Théo Le Guenedal

CREST-ENSAE ( email )

France

Amundi Institute ( email )

90 Boulevard Pasteur
Paris, 75015
France

Takaya Sekine

Amundi Institute ( email )

90 Boulevard Pasteur
Paris, 75015
France

Lauren Stagnol (Contact Author)

Amundi Institute

90 Boulevard Pasteur
Paris, 75015
France

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