Key Points:
- “How Novelty and Narratives Drive the Stock Market” by Nicholas Mangee explores the impact of news narratives on equity behavior.
- The book focuses on the measurement of uncertainty and ambiguity in unscheduled news using text-based indices.
- Textual analysis through natural language processing and machine learning has become the cutting edge of quantitative financial research.
- The book introduces the concept of the novelty-narrative hypothesis, which states that unscheduled and unique information can affect stock behavior.
- Mangee links unique news and stock market prediction, offering explanations for heightened volatility and parameter uncertainty.
- Textual information indices associated with swings in stock market volatility provide insights into market complexity and improve our understanding of stock behavior.
Nicholas Mangee, associate professor of finance at Georgia Southern University, presents “How Novelty and Narratives Drive the Stock Market” as an exploration of the impact of news narratives on equity behavior. The book focuses on the measurement of uncertainty and ambiguity in unscheduled news using text-based indices.
Mangee utilizes textual analysis through natural language processing and machine learning to capture the unique information contained in news narratives. News reports are stories that contain novel information, which confronts investors with “Knightian uncertainty,” the inability to measure probabilities of future states. By categorizing and measuring the impact of news and accompanying narratives, Mangee enriches the discussion of stock price behavior.
The book introduces the novelty-narrative hypothesis (NNH), stating that unscheduled and unique information in the form of narratives can affect stock behavior. This novel information, which cannot easily be handicapped or assigned probability estimates, influences stock behavior through its interpretations. Mangee links unique news and stock market prediction, offering explanations for heightened volatility, breaks in model behavior, and parameter uncertainty.
Mangee’s use of textual information indices associated with swings in stock market volatility provides insights into market complexity and enhances our understanding of stock behavior. By analyzing novel news and its impact on stock prices, investors can gain a better understanding of market volatility and potentially predict market trends.
In conclusion, “How Novelty and Narratives Drive the Stock Market” offers a unique perspective on the impact of news narratives on equity behavior. Through the use of text-based indices and textual analysis, Mangee provides valuable insights into market volatility and the role of novel information in stock price behavior.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Professional Learning for CFA Institute Members
CFA Institute members can self-determine and self-report professional learning (PL) credits earned, including content on “How Novelty and Narratives Drive the Stock Market.” The book provides valuable insights for CFA Institute members looking to enhance their understanding of market volatility and stock behavior.
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