How Do Media Narratives Influence the Financial Markets?
Gideon Ozik, Research Associate at the EDHEC-Risk Institute, EDHEC PhD in Finance (2012) and managing partner of MKT MediaStats, answers questions about his latest work on how media narratives and financial markets intertwine.
What was the motive behind your analysis of media narratives and their impact on financial markets?
Intuitively, we expect the stories that investors read, share and talk about with their friends, colleagues and counter-parties to influence their macroeconomic views, impact their decisions to buy or sell assets and in turn, affect asset prices. Today, coverage of geo-political risk, supply chain disruptions, rising inflation, and rapid deterioration of the climate are all examples of highly prevalent narratives influencing investment decision-making. However, recent works including a seminal book by Nobel laureate Robert Shiller develop the theory of narrative economics that is often demonstrated with powerful examples, but my co-authors and I thought that the literature has a gap insofar as connecting narrative economics to financial markets and coming up with investment management applications. We wanted to explore whether narratives could be systematically quantified from media coverage data and if so, whether investors can use media-based measures of narratives to improve their understanding of aggregate- and firm-level risks, their ability to gain (or hedge) exposures to evolving stories, and ultimately achieve better investment outcomes.
Continue reading the interview with Gideon here
© 2022 MKT MediaStats, LLC - All Rights Reserved