An exciting area of macro research is the use of narrative to help explain the weekly movements in equity markets. This work is still in its infancy and seems to be taking several different directions. This work on narratives started with Robert Shiller and his research on narrative memes that may create bubbles. Another analytic approach has been the development of indices that attempt to measure risk by counting mentions of news events. It has expanded with the development of NLP and LLM models.
An interesting application has been developed using the GDELT database to create different narratives. These narratives are then used as input to a macro model that uses key economic data from FRED. See the paper, “Monitoring Narratives: An Applicaiton ot the Equity Market" Using a set of key narratives developed around news themes, the authors find that added narrative information will increase R-squared and reduce error for a model trying to explain equity returns.
This paper scratches the surface, but it does provide an interesting link between narratives and fundamental data to help explain equity returns. For all the focus on macro quant data, story-telling is still an important driver of markets.
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