Our research strongly suggest that volatility in market psychology correlate to market crashes. In our last post we noted a dramatic jump in SentiTrade’s volatility index (V-SQ). The calculation shows how frequent the market news swing from positive to negative, and back again. Since our last post the DAX lost more than 400 points… Read more

Tags excessive investor pessimism - futures - implicit volatility - market mood - market prediction - meltdown - risk on risk off - V-SQ - volatility calculation

Now that the politicians have decided that Greece is beyond saving, focus is quickly moving onto the next challenge, Italy. Yesterday, the country staged another bond auction, the treasury sold €3.9 billion for a yield of 5.6%, up 0,7% from the July 14th auction. More concerning than the rate increase however, was that the demand was notably down. As a result, the benchmark rate rose to 5,75%, approaching the levels from early August, when the ECB stepped in. Read more

Tags asset allocation - bull bear psychology - derivatives trading - excessive investor pessimism - italian bonds - market psychology - risk on risk off - sentiment momentum - system trading - trading strategy

Last week, SentiTrade’s behavioral finance indicator was integrated at Finanztreff.de, one of the most most important German financial news portals. Finanztreff is owned by the vwd group, a leading European provider of customized information, communications and technology solutions for the securities market. It offers innovative solutions for financial service providers, corporates, media and private clients.
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Tags behavioral finance - behavioral finance indicator - crowd psychology - dax futures - dax index - dax options - derivatives trading - excessive investor optimism - excessive investor pessimism - market prediction - market psychology - market sentiment - sentiment analysis

Behavioral finance starts with the acknowledgment that investors are less rational than we would like to admit. Specifically, this theory states that conventional investment concepts ignore how people really behave… Let’s have a look at the main principles of behavioral finance: Overreaction: The stock market overreaction hypothesis (ORH) holds that if stock prices systematically rise and fall as a consequence of excessive investor optimism or pessimism, one can predict price reversals based on past performance. Read more

Tags behavioral finance - excessive investor optimism - excessive investor pessimism - Fear of Regret - Investment choices - market reversal - OHR - overreaction hypothesis