Decrypting Financial Markets through E-Joint Attention Efforts: On-Line Adaptive Networks of Investors in Periods of Market Uncertainty.

Frederic Amblard,Niccolò Casnici,Pierpaolo Dondio,Roberto Casarin,Flaminio Squazzoni

doi:10.1371/journal.pone.0133712

Frederic Amblard, Niccolò Casnici + Show 3 more

Open Access

https://doi.org/10.1371/journal.pone.0133712

Copy DOI

Journal: PloS one	Publication Date: Aug 5, 2015
Citations: 10	License type: CC BY 4.0

Affiliation: University of Brescia, Ca' Foscari University of Venice

Abstract

This paper looks at 800,000 messages on the Unicredit stock, exchanged by 7,500 investors in the Finanzaonline.com forum, between 2005 and 2012 and measured collective interpretations of stock market trends. We examined the correlation patterns between market uncertainty, bad news and investors' network structure by measuring the investors' communication patterns. Our results showed that the investors' network reacted to market trends in different ways: While less turbulent market phases implied less communication, higher market volatility generated more complex communication patterns. While the information content of messages was less technical in situations of uncertainty, bad news caused more informative messages only when market volatility was lower. This meant that bad news had a different impact on network behaviour, depending on market uncertainty. By measuring the investors' expertise, we found that their behaviour could help predict changes in daily stock returns. We also found that expert investors were more influential in communication processes during high volatility market phases, whereas they had less influence on the real-time forum's reaction after bad news. Our findings confirm the crucial role of e-communication platforms. However, they also show the need to reconsider the fragility of these collective intelligence systems when under external shocks.

Highlights

In the Internet era, investors share information through online communication platforms (e.g., [1], [2] and [3])
Given that we aimed to investigate the relation between network topology and markets and especially its structural stability under different market conditions, we considered the Bayesian Markov-switching Vector Autoregressive Model (VAR) models (MS-VAR) which allowed us to consider VAR parameters that change over time
Our results showed that uncertainty and market bad news increased the joint-attention effort of investors and that the network structure varied depending on market situations

Summary

Introduction

In the Internet era, investors share information through online communication platforms (e.g., [1], [2] and [3]). Professional traders and non-professional investors consider them a means to cope with risky investment decisions in complex market environments where the signalling function of prices alone cannot help investors understand what is going on (e.g., [4] and [5]). Empirical finance studies have emphasized the importance of understanding how these information sharing platforms can generate relevant knowledge, which is eventually incorporated into market dynamics (e.g., prices and stock returns). On-Line Networks of Investors in Periods of Market Uncertainty study design, data collection and analysis, decision to publish, or preparation of the manuscript

Objectives

Methods

Results

Conclusion