Tom

Many agree that financial markets are forward-looking and that a given change in a macroeconomic variable, repeated over time, can have a different impact on market participants' perception. Their assessment is contextual. For example, an increase in unemployment may be construed as positive for the S&P 500 if the Federal Reserve is raising rates to lower inflation expectations. Typically, these types of changing relationships are captured by asset cycle models. One of Tom’s goals is to enrich the information of the cycle model used by Merlin.

Tom builds on the assumption made by the American economist Robert J. Shiller that narratives play an important role in the formation of financial asset prices.

To identify changes in narratives, I construct a small network of agents (The Federal Reserve, the Government, the Corporation, the Options Market Maker, the Analyst...). These agents are connected by their influence on the “Value” of holding the S&P 500.

I am in the process of developing Tom. If you want more information send me a mail.

An interesting – but different - example of the modeling of a narrative was published by Semi Min and Juyong Park in 2019 (“Modeling narrative structure and dynamics with networks, sentiment analysis and topic modeling”). They applied their research to the novel "Les Misérables" by Victor Hugo.