Fear of missing out spurs the stock market – and has this surprising effect, too, research finds
Tuesday marked the end of a remarkable streak of eight straight advances for the S&P 500 SPX,
and to be honest, apart from Tesla TSLA,
things weren’t that bad actually – 249 components went up versus 247 that went down.
So what’s driving the investing behavior that has driven the S&P 500 up 25% this year? Is it the fear of missing out? Yosef Bonaparte, director of external affairs in finance and associate professor of finance at CU Denver Business School and associate researcher at Janus Henderson Investors, decided to quantify the term which has been around for about 20 years and is used enough that it has spawned academic research and even an exchange-traded fund with FOMO as the ticker. In his own research paper, Bonaparte constructs a FOMO index, based on market dynamics, Google keyword searches and the use of margin accounts by investors.
“We believe that for FOMO to exist, we need to have momentum in the stock market; we need investor timeliness feeling high, we call it FOMO timeliness feeling; and we need investors to take additional risk, and we call that FOMO risk, ”says Bonaparte, who has also studied topics such as investment behavior by age and partisan affiliation.
Looking at the data from 2004 to June, he finds a pronounced FOMO effect from 2010. And there is a large sectoral division, the top five sectors being entertainment, recreation, electronic equipment, steel mills, printing. and editing. The only sector not influenced by FOMO is gold / precious metals.
There is more. Bonaparte says the FOMO increases the propensity to participate in the stock market, increases tolerance for risk, and builds overconfidence, which he represents vicariously by looking at the number of transactions. It’s also more prevalent among minorities, risk takers and uneducated households, he concludes, examining the Federal Reserve’s consumer finance survey of how households seek information about stocks. (Sex, to her surprise, made little difference.)
FOMO, he says, actually reduces volatility as measured by the popular fear gauge, the VIX VIX.
index and reduces stock market activity. “Then we can say that there is less volatility or less disagreement when, as the FOMO index rises, more investors become bullish and less bearish,” he writes. This behavior is not true for cryptocurrency, like bitcoin BTCUSD
volumes increase with FOMO. “One plausible explanation is that investors view bitcoin as a speculative asset and stocks as less speculative, and therefore volume behaves differently with more funds going into speculative assets than stocks,” he says. The FOMO also increases the price-to-earnings ratios, no surprise to anyone looking at the rise in the cyclically-adjusted price-to-earnings ratio.
Responding to questions from MarketWatch, Bonaparte said investors can use the information to determine what is fundamental and what is not. In October, the FOMO index jumped 5.2%, after falling 2.7% in September, he said. The S&P 500 jumped 6.9% in October after falling 4.8% in September.
US consumer price data for October is expected to be released, with expectations of price acceleration both at the aggregate and at the base level. TD Securities economists, led by MarketWatch Forecaster of the Year winner Jim O’Sullivan, say they expect big gains in the energy, used vehicle and automotive sectors. ‘Health Insurance. But by next year, they expect inflation to slow significantly as fiscal stimulus wears off and supply constraints ease.
Rivian Automotive valued its IPO at $ 78 per share, valuing Amazon-backed AMZN
electric truck maker to $ 77 billion, above its increased target range.
has reached a deal to buy Finnish food delivery company Wolt for 7 billion euros ($ 8.1 billion) in shares. Investor Cat Rock Capital Management released a presentation on its call to break up Grubhub from its new owner, Just Eat Takeaway.com GRUB.
European Union court upheld $ 2.8 billion antitrust ruling against Alphabet’s Google GOOGL.
stocks fell after the cryptocurrency platform revealed that a less volatile environment resulted in worse-than-expected earnings in the third quarter.
Unity U software
has entered into a $ 1.6 billion deal to buy visual effects company Weta Digital, which is chaired and co-founded by Lord of the Rings director Peter Jackson.
Entertainment giant Walt Disney DIS
reports results after closing.
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ES00 equity futures
soured before the publication of the CPI.
The 10-year Treasury yield BX: TMUBMUSD10Y
Prince Harry says he warned Twitter TWTR
CEO Jack Dorsey said a coup was planned on his platform, ahead of the Jan.6 riot on Capitol Hill.
A second series from the popular “Squid Game” show is coming, although it is not official that it will end up on Netflix NFLX
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