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About MarketPsych

MarketPsych LLC is a leader in behavioral finance, applying the competitive advantages from modern psychology into finance through data, research, and consulting.

World's most comprehensive sentiment data produced in partnership with Thomson Reuters
Predictive analytics underlying economic research, trading strategies, and investment recommendations
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Latest News

April 28, 2015

We'll be presenting at the 5th annual "Behavioural Models & Sentiment Analysis Applied to Finance" conference in London on July 15-16, 2015, which is consistently an excellent conference.

March 24, 2015

We're presenting a free webinar for CTAs:  "Systematically Exploiting Trends in Commodities, Forex, and Global Equity Indexes Using Media Sentiment Analysis."  Register Here (Select WEBCAST 4).

January 28, 2015

A recording of our webinar "Arbitraging News Sentiment Across Global Equities" is available on YouTube.

Recent Press

April 27, 2015

Hopkins research finds Twitter mood predicts success of IPOs -- Lorraine Mirabella Bloomberg Business

April 24, 2015

Emotional Arbitrage -- Chris Hall The Trade

January 29, 2015

Watch Out: Financial Advisors Are Selling ‘Life Planning’ Services -- Joanne Cleaver U.S. News and World Report

May 04, 2015

Our Age of Speculative Manias & Making Sense of Chinese and Biotech Stocks

A situation in which prices for securities, especially stocks, rise far above their actual value.
~Definition of a Speculative Bubble, Farlex Financial Dictionary

The history of bubbles starts with the Dutch Tulip Mania of 1637, and the occurrence of bubbles has accelerated, especially in the past 20 years.  Among others we had the Dot-com bubble of 1996-2000, the housing bubbles of 2004-2006, the Chinese stock market bubble of 2006, and the Bitcoin bubble of 2013.  As markets, information, and the trade of assets has expanded, bubbles have become a frequent characteristic of modern markets (note the two bubbles apparent on the Chinese stock chart at the end of this newsletter).

In order to deeply understand the mechanics of bubbles, the Nobel-laureate Vernon Smith developed the most widely cited experimental model to elicit bubbles among laboratory participants.   Smith and his co-authors designed a set of experiments in which a trade-able asset gives a dividend with the expected value of $0.24 at the end of each of 15 periods.  Within each round, the market is open for trading shares.  At the end of each round, each share pays a dividend. The dividend per round is one of $0, $0.08, $0.28 or $0.60 cents with equal probability.  At the end of the experiment, after 15 rounds, the assets are worthless.  

Classical economics would predict that the asset would start trading near $3.60 (15 times $0.24) and decline by 24 cents each period. Smith and his co-authors found instead that prices started traded well below the fundamental value and subsequently rose far above it in later periods. The average transaction price peaks around periods 9 to 11 and it crashes from periods 13 to 15.  This experiment has been repeated hundreds of times in labs around the world with similar results. 

Experimental bubbles emerge despite various manipulations to the experimental model, including  allowing short-selling, margin buying, and insider trading.  Even when uncertainty about payoffs and asset values is eliminated, bubbles persist.  Bubbles arise regardless of whether participants are business students, managers, or professional traders.  

Given the predictability of these valuation bubbles despite various experimental manipulations, it’s apparent that a psychological element - as yet unquantified - is a defining feature.  That psychological aspect is evident in everyday descriptions of bubbles, in which words such as “mania” and “irrational exuberance" are used.  To describe the process of a bubble’s crash, terms such as "fear" and “panic” are employed.   Research examining the impact of such emotions during a Smith’s classic experimental market finds that positive excitement among participants generates larger pricing bubbles (references at end), positive facial expressions of investors correlate with larger bubbles, and investor fear induces early sell-offs in bubbles.  Results from (Andrade, Lin and Odean; 2014), who induced various emotions in bubble participants using movie clips, is visible below:

We may be in the midst of several bubbles currently:  a bond bubble, a biotech (and social media) bubble, and a Chinese stock bubble.  May be is the key phrase.  If a bubble is defined as market valuations widely exceeding fundamental valuations, then hindsight is the only real evidence (after the crash).  But as investors, we don’t have the luxury of hindsight.

Since there is both a massive creation and destruction of wealth during bubbles, the three questions of interest to most investors are:
1.  How do I identify where and when a bubble will occur?
2.  How do I identify when a bubble is underway?
3.  How can I know when a bubble will go bust?
We will superficially pursue these questions in this letter.  To answer the first question, we need to understand the preconditions for the emergence of a bubble.  To answer the second question, we will explore how fundamentals, investor psychology, media attention, and price action interact to form bubbles.  For the third question we will examine bubble peaks and the signs of convincing deflation.  The third question is by far the most difficult, and not having a clear plan has led to many investors - like Samuel Clemens - participating in both the ride up and the ride down.

continue reading...

World Markets

- (30 day data)

Price Buzz Sntment Econunc Govinst
United States +1.5%
United Kingdom +2.2%
Germany -4.3%
Japan +0.5%
China +15.0%
India -4.4%

updated 2015-05-03


- (30 day data)

Price Buzz Sntment Prcfrc Volatil
US Dollar -2.8%
Euro +2.9%
Brazilian Real +7.0%
Japanese Yen +0.6%

updated 2015-05-03


- (30 day data)

Price Buzz Sntment Prodvol Cnsmvol
Crude Oil +20.4%
Natural Gas +2.3%
Gold -2.2%
Corn -6.9%

updated 2015-05-03

US Sectors

- (30 day data)

Price Buzz Sntment Innovtn Earnfct
Technology +4.2%
Energy +6.6%
Utilities -0.2%
Financials +0.5%
Industrials +1.6%

updated 2015-05-03

US Large Cap

- (30 day data)

Price Buzz Sntment Mktrisk Fundmstr
Apple Inc +2.9%
Bank of America Corp +3.7%
General Electric Co +9.5%
JPMorgan Chase & Co +5.1%
Microsoft Corp +20.8%
Wal-Mart Stores Inc -2.6%

updated 2015-05-03

Countries Top Lists

- (30 day data)

Trade Balance
Highest Lowest
Japan Russia
Indonesia Denmark
Singapore South Korea
Germany India
Consumer Sentiment
Highest Lowest
Sweden Switzerland
Belgium Australia
South Africa Israel
Canada Russia

updated 2015-05-03

Currencies Top Lists

- (30 day data)

Highest Lowest
United Arab Emirates Dirham Turkish Lira
Hong Kong Dollar Indian Rupee
Taiwanese Dollar Russian Ruble
Canadian Dollar Malaysian Ringgit
Time Urgency
Highest Lowest
Hong Kong Dollar Egyptian Pound
Chinese Yuan Renminbi Iranian Rial
British Pound Thai Baht
Singapore Dollar Norwegian Krone

updated 2015-05-03

Commodities Top Lists

- (30 day data)

Highest Lowest
Hogs Orange Juice
Cattle Soybeans
Platinum Wheat
Palladium Copper
Price Forecast
Highest Lowest
Platinum Soybeans
Natural Gas Heating Oil
Copper Corn
Hogs Gold

updated 2015-05-03

Equities Top Lists

- (30 day data)

Highest Lowest
Union Pacific Corp Paychex Inc
Halliburton Co Intuit Inc
Schlumberger NV Amgen Inc
Spectra Energy Corp Xerox Corp
Price Forecast
Highest Lowest
Hasbro Inc Harman International Industries Inc
Ingersoll-Rand PLC Expedia Inc
Textron Inc ConocoPhillips
St. Jude Medical Inc Whirlpool Corp

updated 2015-05-03