What is Narrative Heat?
How densely a single story is dominating the news flow — the dimension that compresses fundamentals into bias.
Definition
Narrative heat is the share of recent high-tier news flow attributable to one dominant theme (e.g. "Iran war", "Fed pivot", "AI capex"). It is measured as a weighted concentration index over Tier 0/1 headlines in a rolling window. Heat ≥ 60% means the market is *single-narrative* — every flow is being priced through that lens; cross-asset correlations spike, idiosyncratic edges shrink.
Why it matters for trading
- In single-narrative regimes, all risk assets correlate to one driver. Trading divergences (long oil + short equities) becomes mathematically equivalent to leveraging the narrative.
- When heat collapses (narrative exhaustion), correlations decompress and idiosyncratic factor models start working again. The bias engine widens its factor weights.
- Heat is a leading indicator of regime change. A sustained drop from 80→40 over 48h often precedes a "what was that whole thing about" reversal in the dominant asset.