Expectations Concordance and Stock Market Volatility: Knightian Uncertainty in the Year of the Pandemic

Roman Frydman () and Nicholas Mangee
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Roman Frydman: New York University

No inetwp164, Working Papers Series from Institute for New Economic Thinking

Abstract: This study introduces a novel index based on expectations concordance for explaining stock-price volatility when historically unique events cause unforeseeable change and Knightian uncertainty in the process driving outcomes. Expectations concordance measures the degree to which non-repetitive events are associated with directionally similar expectations of future returns. Narrative analytics of daily news reports allow for assessment of bullish versus bearish views in the stock market. Increases in expectations concordance across all KU events leads to reinforcing effects and an increase in stock market volatility. Lower expectations concordance produces a stabilizing effect wherein the offsetting views reduce market volatility. The empirical findings hold for ex post and ex ante measures of volatility and for OLS and GARCH estimates.

Keywords: expectations concordance; narrative analytics; volatility; Knightian uncertainty (search for similar items in EconPapers)
JEL-codes: D81 D84 G12 G14 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2021-09-05
New Economics Papers: this item is included in nep-cwa, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Expectations Concordance and Stock Market Volatility: Knightian Uncertainty in the Year of the Pandemic (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:inetwp164

DOI: 10.36687/inetwp164

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