Narrative Analytics and Stock Market Forecasting

This pioneering book analyzes the ability of narratives to help forecast stock market performance. Nicholas Mangee delves into the forecasting component of the Novelty-Narrative Hypothesis (NNH) and its two pillars of relevance realization and contextualized meaning, using a wide range of empirical evidence to demonstrate how narratives can help inform investment strategies. Chapters examine the forecasting element of the NNH in the context of real-world investment scenarios, drawing on detailed case studies, news event classification, and online search data. They shed light on the significant yet contingent ways in which narratives predict firm, industry, and aggregate market outcomes; improve portfolio performance over time; and reduce the degree of instability in expected return regressions. Challenging dominant paradigms, Mangee provides a rational role for sentiment in stock market forecasting, emphasizing the importance of the interaction between sentiment and narrative dynamics in explaining future fundamentals and returns. Students and academics in financial economics and regulation, economic psychology, risk and uncertainty, and economic thought will greatly benefit from this comprehensive exploration of stock market narratives. This incisive book is also an invaluable resource for traders, fund managers, policymakers and other practitioners interested in enhancing forecasting strategies.