Narratives, instability, and portfolio management

Nicholas Mangee ()

Chapter 10 in Narrative Analytics and Stock Market Forecasting, 2025, pp 131-146 from Edward Elgar Publishing

Abstract: This chapter makes two contributions. First, it discusses the empirical role of narratives in affecting and reflecting structural change in stock market relationships. Investor sentiment is then interacted with market narratives. Evidence of structural change across the full sample period is removed once the autoregressive distributed lag (ARDL) model is estimated within sub-periods of statistical parameter constancy. A discussion is presented on the role of narratives and sentiment in helping to manage both systematic and idiosyncratic risk in the face of structural change. Second, the chapter presents a value-weighted portfolio analysis. Two all-equity portfolios are constructed based on a sample of firms: one is based on a pure market capitalization weighting scheme; the other portfolio's weights are adjusted based on each firm's narrative intensity. Allowing for narrative adjustments to the firm-specific portfolio weights increases total portfolio value over the sample when compared to the pure value-weighted alternative.

Keywords: Narrative-sentiment interaction; Stock market instability; Autoregressive distributed lag model; Narrative-adjusted portfolio value (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035357598
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