Nicklaus: Research defines investor fear in black and white

The stock market’s swings often have more to do with fear and greed than with hard economic data. The trouble is, human psychology is impossible to quantify. So we thought, at least. Asaf Manela, an assistant professor of finance at Washington University’s Olin School of Business, has helped develop a new index that seems to be able to identify times when fear has taken over the market. The raw material for the index has been hiding in plain sight for more than a century: It’s based on the front page of the Wall Street Journal. Using a process called machine learning, computers analyze headlines and stories and spit out a score that indicates how worried people are about the future. Manela and a co-author, Alan Moreira of the Yale School…


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