Yuting Chen

Abstract

This thesis explores how differences in investor beliefs, and the stories that shape them, affect asset prices, especially in stressed markets. Relaxing the usual assumption that investors are fully rational and homogeneous shows how narratives can spread, move sentiment, and push prices away from fundamentals for long periods. Using tools from natural language processing and econometrics, the thesis documents how pandemic-related news narratives drove stock market volatility, how narrative indicators can flag the build-up and unwinding of asset bubbles, how stories about opportunities fuel run-like redemptions in corporate bond mutual funds, and how narrative signals can improve standard asset pricing models. Taken together, the four papers show that narratives are central to how beliefs form and markets move, and that incorporating narrative information alongside traditional quantitative measures can deepen our understanding of financial instability and systemic risk.