Narrative drives
“Quantifying Narratives and their Impact on Financial Markets” – By State Street (>4T AUM)
- Narratives derived from media coverage using textual analysis can explain market-wide moves
- Narrative-conscious strategies can improve asset allocation
- Investors can gain or hedge financial exposure to a narrative by constructing portfolios of
narrative-sensitive assets
“Narrative Economics”
The human brain has always been highly tuned towards narratives, whether factual or not, to justify
ongoing actions, even such basic actions as spending and investing. Narratives “go viral” and spread far, even worldwide,
with economic impact”
Exponential growth of attention to narratives
“On average about five papers per year were published from the end of the 1990s until 2012. In 2013, a remarkable jump to 19 publications occurred and the number has continued to rise to 64 in 2021 and roughly stabilize at this level in 2022”
Intuition why that’s important
The human brain can actively hold only 4 to 7 pieces of information at a time but there are thousands of data points we can find with a single click on economy or the favorite stock. By simplifying everything we’ve become so attracted to the single yet a powerful idea, that this became the behavior of the entire market.