'Animal spirits' is a term that describes the instincts and emotions driving human behaviour in economic settings. In recent years, this concept has been discussed in relation to the emerging field of narrative economics. When unscheduled events hit the stock market, from corporate scandals and technological breakthroughs to recessions and pandemics, relationships driving returns change in unforeseeable ways. To deal with uncertainty, investors engage in narratives which simplify the complexity of real-time, non-routine change. This book assesses the novelty-narrative hypothesis for the U.S. stock market by conducting a comprehensive investigation of unscheduled events using big data textual analysis of financial news. This important contribution to the field of narrative economics finds that major macro events and associated narratives spill over into the churning stream of corporate novelty and sub-narratives, spawning different forms of unforeseeable stock market instability.

'This important book completes a project begun by Keynes long before The General Theory and overthrows the standard approach to uncertainty in economics. Its study of narratives, multiple equilibria, and use of machine learning to extract the contents of narratives from financial reporting is certain to be of wide interest and is a real contribution to economics.'

George Akerlof - Nobel Laureate in Economics

'A substantial contribution to operationalizing the narrative approach to analyzing fundamental uncertainty as an ongoing feature of the stock market. Uncertainty prevents the definitive measurement of risk which underpins mainstream macro-finance models. But Mangee shows how the incidence of uncertainty, its causes in unforeseen events, and the way in which markets deal with it through narratives can be analyzed and quantified. The dataset he has built up is a contribution in itself. This is a thoughtful, thoroughly-researched exploration of the narrative approach to embedding fundamental uncertainty in the core of economics and finance. It should be read attentively by theorists, policy-makers, and financial practitioners alike.'

Sheila Dow - University of Stirling

'Attempts to escape from economists’ equilibrium trap have been hampered by their conceit of dividing expectations into ‘rational’ and ‘irrational’. Nicholas Mangee shows, and shows brilliantly, that in the face of inescapable uncertainty, rational decision-making is necessarily built on ‘novelty and narrative’, not mathematical probability.'

Lord Robert Skidelsky - Warwick University

'It is a fact of life that stock market returns, along with the innovations that frequently drive them, are the outcome of unrepeatable and unforeseeable. This book’s Novelty-Narrative Hypothesis helps us understand how these unknowns drive market outcomes. This book is a treasure trove of information and insights into the radical uncertainty that drives so much of our economic experiences. Economists, policy makers, and market participants should take note.'

Dennis Snower - G20 Economic Policy Advisor and President of Global Solutions Initiative

'To say that this book is timely is a massive understatement – current events will be dissected with great interest for the coming decade.'

Richard Friberg - Stockholm School of Economics

'This book develops the Novelty-Narrative Hypothesis, a highly original approach to empirical examination of stock market outcomes that enables economists, policymakers, and market participants to better understand unforeseeable change and Knightian uncertainty. Mangee provides a hitherto unavailable set of tools for extracting information from historical events and narrative dynamics, which will be invaluable in academic research and teaching as well as in making practical policy and business decisions.'

Roman Frydman - New York University

'Mangee provides a solid introduction to a novel approach to explaining equity instability.’

Mark S. Rzepczynski Source: CFA Institute

‘This book details a new framework for analysing KU and its relationship with the stock market. The book’s presentation, while ensuring academic rigour, is also casual and accessible to those without formal academic training in economics or finance. Different groups of readers can all find something useful in the book.’

Anna Sturman Source: Economic Record