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Crash Narratives

Author

Listed:
  • William N. Goetzmann
  • Dasol Kim
  • Robert J. Shiller

Abstract

The financial press is a conduit for popular narratives that reflect collective memory about historical events. Some collective memories relate to major stock market crashes, and investors may rely on associated narratives, or “crash narratives,” to inform current beliefs and choices. Using recent advances in computational linguistics, we develop a higher-order measure of narrativity based on newspaper articles that appear following major crashes. We provide evidence that crash narratives propagate broadly once they appear in news articles, and significantly explain predictive variation in market volatility. We exploit investor heterogeneity using survey data to distinguish the effects of narrativity and fundamental conditions and find consistent evidence. Finally, we develop a measure of pure narrativity to examine when the financial press is more likely to employ narratives.

Suggested Citation

  • William N. Goetzmann & Dasol Kim & Robert J. Shiller, 2022. "Crash Narratives," NBER Working Papers 30195, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30195
    Note: AP
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    More about this item

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • G00 - Financial Economics - - General - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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