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Anxiety, Expectations Stabilization and Intertemporal Markets: Theory, Evidence and Policy

Author

Listed:
  • Francesco Carbonero
  • Jeremy Davies
  • Ekkehard Ernst
  • Sayantan Ghosal
  • Leaza McSorley

Abstract

Anxiety is a negative emotion experienced today in response to future risk. We model how anxiety impacts on risky investment when expected future returns interact with multiple narratives and strategic uncertainty today. A novel anxiety index is constructed via a sentiment analysis of daily online articles in the Daily Mail, Reuters and Press Association; its plausibility is established by comparing it to the corresponding ONS measure over the Covid-19 pandemic. A SVAR analysis shows that anxiety impacts negatively on stock market volatility, a model prediction. We discuss the welfare implications of lighthouse policies focusing on Brexit and the pandemic.

Suggested Citation

  • Francesco Carbonero & Jeremy Davies & Ekkehard Ernst & Sayantan Ghosal & Leaza McSorley, 2021. "Anxiety, Expectations Stabilization and Intertemporal Markets: Theory, Evidence and Policy," Working Papers 2021_12, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2021_12
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    More about this item

    Keywords

    anxiety; investment; uncertainty; strategy; narratives; sentiment; lighthouse; policy; coronacrisis; Brexit;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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