IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2502.14497.html
   My bibliography  Save this paper

Stories that (are) Move(d by) Markets: A Causal Exploration of Market Shocks and Semantic Shifts across Different Partisan Groups

Author

Listed:
  • Felix Drinkall
  • Stefan Zohren
  • Michael McMahon
  • Janet B. Pierrehumbert

Abstract

Macroeconomic fluctuations and the narratives that shape them form a mutually reinforcing cycle: public discourse can spur behavioural changes leading to economic shifts, which then result in changes in the stories that propagate. We show that shifts in semantic embedding space can be causally linked to financial market shocks -- deviations from the expected market behaviour. Furthermore, we show how partisanship can influence the predictive power of text for market fluctuations and shape reactions to those same shocks. We also provide some evidence that text-based signals are particularly salient during unexpected events such as COVID-19, highlighting the value of language data as an exogenous variable in economic forecasting. Our findings underscore the bidirectional relationship between news outlets and market shocks, offering a novel empirical approach to studying their effect on each other.

Suggested Citation

  • Felix Drinkall & Stefan Zohren & Michael McMahon & Janet B. Pierrehumbert, 2025. "Stories that (are) Move(d by) Markets: A Causal Exploration of Market Shocks and Semantic Shifts across Different Partisan Groups," Papers 2502.14497, arXiv.org.
    • Handle: RePEc:arx:papers:2502.14497
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2502.14497
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nguyen, Hang T. & Chaudhuri, Malika, 2019. "Making new products go viral and succeed," International Journal of Research in Marketing, Elsevier, vol. 36(1), pages 39-62.
    2. Felix Drinkall & Janet B. Pierrehumbert & Stefan Zohren, 2025. "When Dimensionality Hurts: The Role of LLM Embedding Compression for Noisy Regression Tasks," Papers 2502.02199, arXiv.org.
    3. Ash, Elliott & Gauthier, Germain & Widmer, Philine, 2024. "Relatio: Text Semantics Capture Political and Economic Narratives – ERRATUM," Political Analysis, Cambridge University Press, vol. 32(1), pages 156-156, January.
    4. Renée Fry & Adrian Pagan, 2011. "Sign Restrictions in Structural Vector Autoregressions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 938-960, December.
    5. Margaret E. Roberts & Brandon M. Stewart & Richard A. Nielsen, 2020. "Adjusting for Confounding with Text Matching," American Journal of Political Science, John Wiley & Sons, vol. 64(4), pages 887-903, October.
    6. Shinichi Nakagawa, 2004. "A farewell to Bonferroni: the problems of low statistical power and publication bias," Behavioral Ecology, International Society for Behavioral Ecology, vol. 15(6), pages 1044-1045, November.
    7. Hobolt, Sara B. & Lawall, Katharina & Tilley, James, 2024. "The Polarizing Effect of Partisan Echo Chambers," American Political Science Review, Cambridge University Press, vol. 118(3), pages 1464-1479, August.
    8. Bledar Fazlija & Pedro Harder, 2022. "Using Financial News Sentiment for Stock Price Direction Prediction," Mathematics, MDPI, vol. 10(13), pages 1-20, June.
    9. George A. Akerlof & Robert J. Shiller, 2010. "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism," Economics Books, Princeton University Press, edition 1, number 9163.
    10. Jiaming Zeng & Michael F. Gensheimer & Daniel L. Rubin & Susan Athey & Ross D. Shachter, 2022. "Uncovering interpretable potential confounders in electronic medical records," Nature Communications, Nature, vol. 13(1), pages 1-14, December.
    11. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    12. Ash, Elliott & Gauthier, Germain & Widmer, Philine, 2024. "Relatio: Text Semantics Capture Political and Economic Narratives," Political Analysis, Cambridge University Press, vol. 32(1), pages 115-132, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wonseong Kim & Choong Lyol Lee, 2024. "Bounded Rationality in Central Bank Communication," Papers 2411.04286, arXiv.org.
    2. Eleni Kalamara & Arthur Turrell & Chris Redl & George Kapetanios & Sujit Kapadia, 2022. "Making text count: Economic forecasting using newspaper text," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(5), pages 896-919, August.
    3. Tillman, Peter, 2016. "Uncertainty about Federal Reserve Policy and Its Transmission to Emerging Economies: Evidence from Twitter," ADBI Working Papers 592, Asian Development Bank Institute.
    4. Andres Karjus, 2025. "Machine-assisted quantitizing designs: augmenting humanities and social sciences with artificial intelligence," Palgrave Communications, Palgrave Macmillan, vol. 12(1), pages 1-18, December.
    5. repec:hal:cepnwp:hal-00841167 is not listed on IDEAS
    6. Gu, Chen & Kurov, Alexander & Wolfe, Marketa Halova, 2018. "Relief Rallies after FOMC Announcements as a Resolution of Uncertainty," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 1-18.
    7. Morita, Hiroshi, 2014. "External shocks and Japanese business cycles: Evidence from a sign-restricted VAR model," Japan and the World Economy, Elsevier, vol. 30(C), pages 59-74.
    8. An, Lian & Kim, Gil & Ren, Xiaomei, 2014. "Is devaluation expansionary or contractionary: Evidence based on vector autoregression with sign restrictions," Journal of Asian Economics, Elsevier, vol. 34(C), pages 27-41.
    9. Stefan Laséen & Andrea Pescatori, 2020. "Financial stability and interest‐rate policy: A quantitative assessment of costs and benefit," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1246-1273, August.
    10. Michal Franta, 2012. "Macroeconomic Effects of Fiscal Policy in the Czech Republic: Evidence Based on Various Identification Approaches in a VAR Framework," Working Papers 2012/13, Czech National Bank.
    11. Zsolt Darvas, 2013. "Monetary transmission in three central European economies: evidence from time-varying coefficient vector autoregressions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(2), pages 363-390, May.
    12. Müller, Karsten, 2020. "German forecasters' narratives: How informative are German business cycle forecast reports?," Working Papers 23, German Research Foundation's Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour", Humboldt University Berlin.
    13. Tölö, Eero & Miettinen, Paavo, 2018. "How do shocks to bank capital affect lending and growth?," Bank of Finland Research Discussion Papers 25/2018, Bank of Finland.
    14. Britta Gehrke & Fang Yao, 2016. "Persistence and volatility of real exchange rates: the role of supply shocks revisited," Reserve Bank of New Zealand Discussion Paper Series DP2016/02, Reserve Bank of New Zealand.
    15. Candelon, Bertrand & Lieb, Lenard, 2013. "Fiscal policy in good and bad times," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2679-2694.
    16. Aaryan Gupta & Vinya Dengre & Hamza Abubakar Kheruwala & Manan Shah, 2020. "Comprehensive review of text-mining applications in finance," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-25, December.
    17. Yan Luo & Linying Zhou, 2020. "Textual tone in corporate financial disclosures: a survey of the literature," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 17(2), pages 101-110, September.
    18. Jiao Ji & Oleksandr Talavera & Shuxing Yin, 2018. "The Hidden Information Content: Evidence from the Tone of Independent Director Reports," Working Papers 2018-28, Swansea University, School of Management.
    19. Bennani, Hamza & Romelli, Davide, 2024. "Exploring the informativeness and drivers of tone during committee meetings: The case of the Federal Reserve," Journal of International Money and Finance, Elsevier, vol. 148(C).
    20. Matteo Barigozzi & Antonio M. Conti & Matteo Luciani, 2014. "Do Euro Area Countries Respond Asymmetrically to the Common Monetary Policy?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(5), pages 693-714, October.
    21. Anastasios Evgenidis & Apostolos Fasianos, 2019. "Monetary Policy and Wealth Inequalities in Great Britain: Assessing the role of unconventional policies for a decade of household data," Papers 1912.09702, arXiv.org.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2502.14497. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.