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from PART III - EMPIRICAL EVIDENCE FOR THE NOVELTY-NARRATIVE HYPOTHESIS
Published online by Cambridge University Press: 23 September 2021
Chapter 9 extends the analysis by presenting statistical tests shedding light on the comovements between corporate KU event indices and actual stock market outcomes at the aggregate and firm level. The first stage of the analysis is based on correlation statistics between the micro KU indices and the SP500, the CAPE price-to-earnings ratio, the VIX options implied volatility index, SP500 trading volume, and equity fund ETF flows. Findings suggest a strong underlying relation between novel corporate events and stock market outcomes with many hypothesized signs consistent with the Novelty-Narrative Hypothesis. The second stage of the analysis focuses on unscheduled corporate events and the variance in analyst projections of long-term growth prospects for individual Dow Jones Industrial Average 30 firms. Results suggest a significant inverse relationship between the dispersion of firm-level analyst forecasts over time and both the count of corporate KU events and variation in KU event groups. Lastly, Granger causality tests find that the significance runs from lagged KU event and variation indices to future values of analyst growth estimates.
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