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12 - Applying Novelty and Narratives to Other Research

from PART III - EMPIRICAL EVIDENCE FOR THE NOVELTY-NARRATIVE HYPOTHESIS

Published online by Cambridge University Press:  23 September 2021

Nicholas Mangee
Affiliation:
Georgia Southern University
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Summary

Chapter 12 offers some suggestions about how researchers in economics and finance may apply the KU indices and narrative proxies in their own work moving forward. The present value model for the aggregate stock market is used as a case study wherein the SP500 dividend series is adjusted for the narrative influence from the dividends/earnings unscheduled corporate event group presented in Chapter 7. Cointegration analysis finds that stock market prices and dividends only share a longer-run cointegrating relationship when dividends are adjusted for novelty–narrative effects. The chapter then offers an example applying the baseline KU corporate index interacted with sentiment, novelty, and relevance to a simple trading strategy that shows enhanced returns through a back-testing example where long positions are opened or closed based on moderately high narrative intensity periods.

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Chapter
Information
How Novelty and Narratives Drive the Stock Market
Black Swans, Animal Spirits and Scapegoats
, pp. 295 - 306
Publisher: Cambridge University Press
Print publication year: 2021

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