Narratives, the Fed, and future stock market performance

Nicholas Mangee ()

Chapter 6 in Narrative Analytics and Stock Market Forecasting, 2025, pp 65-75 from Edward Elgar Publishing

Abstract: What allows narrative dynamics to explain future outcomes when narratives themselves are a potential source of uncertainty? First, as an extension of Chapter 3's treatment of relevance realization and contextualized meaning, a simple model is sketched to illuminate two areas of unforeseeable change in the process of driving stock returns, namely change in the relevant variables and change in the coefficient weights. Put differently, future stock returns depend on which information matters in what ways. The role of narrative dynamics for each element is discussed. Second, the interdependence between novel events and stories when forecasting the stock market will be motivated by the historic rise in US inflation in 2022 and the accompanying “inflation narrative.” Specifically, the Federal Reserve's breach of forward guidance with its 75-basis point hike in June 2022 will be poured over through textual news analytics of both daily stock market news reports and Google Trends search interest.

Keywords: US inflation; Inflation narrative; Structural change effects; Stock market volatility; Stock market returns; Federal Reserve (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035357598
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