Quantifying Narratives and their Impact on Financial Markets

Journal of Portfolio Management, Forthcoming

25 Pages Posted: 8 Aug 2022 Last revised: 4 Nov 2022

See all articles by Rajeev Bhargava

Rajeev Bhargava

State Street Associates

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics

Gideon Ozik

EDHEC Business School

Ronnie Sadka

Boston College - Carroll School of Management

Travis Whitmore

State Street Associates; State Street Corporate

Date Written: July 15, 2022

Abstract

This paper introduces a media-coverage-based approach to quantify narratives and develops methodologies to explain the extent to which narratives drive financial markets and returns of investment portfolios. We show that media-derived narratives may contain predictive information for market returns beyond traditional macro indicators. Finally, we demonstrate that narrative indicators can be used to enhance asset allocation strategies and to gain or hedge exposure to narratives by constructing portfolios of narrative-sensitive assets.

Keywords: Media Sentiment, Investor Behavior, Economic Themes, Narratives, Market Drivers

JEL Classification: G11, G12, G14, G17, G41

Suggested Citation

Bhargava, Rajeev and Lou, Xiaoxia and Ozik, Gideon and Sadka, Ronnie and Whitmore, Travis, Quantifying Narratives and their Impact on Financial Markets (July 15, 2022). Journal of Portfolio Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4166640 or http://dx.doi.org/10.2139/ssrn.4166640

Rajeev Bhargava

State Street Associates ( email )

165 Tremont Street
Unit 705
Boston, MA 02111
United States

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States

Gideon Ozik

EDHEC Business School ( email )

Nice
France

Ronnie Sadka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Travis Whitmore (Contact Author)

State Street Associates ( email )

165 Tremont Street
Unit 705
Boston, MA 02111
United States

HOME PAGE: http://https://www.linkedin.com/in/traviswhitmore/

State Street Corporate ( email )

1 Lincoln Street
Boston, MA 02111
United States

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