Brain Activity Foreshadows Stock Price Dynamics.

Abstract

Successful investing is challenging since stock prices are difficult to consistently forecast. Recent neuroimaging evidence suggests, however, that activity in brain regions associated with anticipatory affect may not only predict individual choice, but also forecast aggregate behavior out-of-sample. Thus, in two experiments, we specifically tested whether anticipatory affective brain activity in healthy humans could forecast aggregate changes in stock prices. Using functional magnetic resonance imaging, we found in a first experiment (n = 34, 6 females; 140 trials/subject) that nucleus accumbens activity forecast stock price direction, whereas anterior insula (AIns) activity forecast stock price inflections. In a second preregistered replication experiment (n = 39, 7 females) that included different subjects and stocks, AIns activity still forecast stock price inflections. Importantly, AIns activity forecast stock price movement even when choice behavior and conventional stock indicators did not (e.g., previous stock price movements), and classifier analysis indicated that forecasts based on brain activity should generalize to other markets. By demonstrating that AIns activity might serve as a leading indicator of stock price inflections, these findings imply that neural activity associated with anticipatory affect may extend to forecasting aggregate choice in dynamic and competitive environments such as stock markets.SIGNIFICANCE STATEMENT Many try but fail to consistently forecast changes in stock prices. New evidence, however, suggests that anticipatory affective brain activity may not only predict individual choice, but also may forecast aggregate choice. Assuming that stock prices index collective choice, we tested whether brain activity sampled during the assessment of stock prices could forecast subsequent changes in the prices of those stocks. In two neuroimaging experiments, a combination of previous stock price movements and brain activity in a region implicated in processing uncertainty and arousal forecast next-day stock price changes—even when behavior did not. These findings challenge traditional assumptions of market efficiency by implying that neuroimaging data might reveal “hidden information” capable of foreshadowing stock price dynamics.