Immigration narrative sentiment from TV news and the stock market

Often debated in the media, immigration is a contentious topic in the U.S. Shiller (2017), and Shiller (2019) posit that narratives can drive economics events. This paper investigates the relationship between the immigration narrative sentiment and the stock market using the sentiment extracted from of 1.3 million TV news transcripts. Results from Panel Vector Auto Regression (PVAR) estimations show that the immigration narrative sentiment is related to stock market indicators. A positive shock to the immigration narrative sentiment Granger-causes a statistically significant and economically meaningful increase in the stock prices, a decrease in implied volatility, and a statistically significant but economically small increase in trade volume. However, stock market variation does not affect the immigration narrative sentiment. The effect of the immigration narrative sentiment shock to market indicators is long lasting suggesting that the immigration narrative likely contains fundamental information about equities that has not been priced. (C) 2022 Elsevier B.V. All rights reserved.