What We Learn about Global Systemic Risk with Neurosciences

Abstract

Financial market crises are frequent events that trigger large financial losses and represent an important global systemic risk (GSR). GSR forecasting is, therefore, a necessity to avoid the collapse of the global financial market. Understanding GSR dynamics is imperative if it is to be forecasted and controlled. Traditional finance theories have developed many tools for risk management that proved to be unreliable in the case of the 2008 Crisis. Recent results on financial decision-making provided by Neurosciences have being used to model the stock market dynamics. This approach is used, here, to model stock price evolution in 20 bourses during the period between January, 3, 2007 and September, 9, 2011. Present results show, by the one side that the market humor, calculated as a function of the conflict associated with the stock benefit and risk evaluations and with the stock volatility, provides an adequate measure of a systematic global systemic risk, and by the other side that humor threshold variation reflect unsystematic global systemic risks.