Irrational Exuberance Research Articles

Fair values in extreme markets

AbstractThis study investigates the valuation of fair values in extreme market conditions. Using a modified Ohlson model and a large US sample, this study finds that the valuation of fair values in extreme market conditions is consistent with the presence of a positive feedback loop bias. This bias manifests as irrational exuberance in overheated markets and undue panic in depressed markets. The results are robust under several different test designs. Additional tests of moderating factors show that good performance and low risk intensify irrational exuberance in overhead markets, and poor performance and high risk worsen undue panic in depressed markets.

Government-Made House Price Bubbles? Austerity, Homeownership, Rental, and Credit Liberalization Policies and the “Irrational Exuberance” on Housing Markets

Government-Made House Price Bubbles? Austerity, Homeownership, Rental, and Credit Liberalization Policies and the “Irrational Exuberance” on Housing Markets

‘Irrational Exuberance’: Behavioural Finance and Émile Zola’s L’Argent

Abstract Émile Zola’s L’Argent has been relatively neglected by critical studies. This interdisciplinary study adds to earlier approaches by examining the ways in which Zola’s novel anticipates strands of contemporary behavioural finance, notably in its analysis of the psychological and social conditions behind ‘irrational exuberance’ and a speculative stock-market bubble. A few avenues are explored, inspired by Robert Shiller’s Irrational Exuberance: precipitating factors, amplification mechanisms, news media, individual investor psychology, herding. The novel reflects contemporary thinking from behavioural finance, but goes further, in its greater human depth, its humour and complexity. Moreover, the novel displays, beyond behavioural finance, a conjunction of financial exuberance with bodily, philosophical, and artistic jouissance, further anticipating modern times.

Beware of Extreme Investor Sentiments! Indian Evidence on the Performance of Neuro-specific Options Volatility Trading Strategies on the Facets of COVID-19

This study investigates the dynamic relationship between noise trader sentiment and excessive volatility in the Indian financial market during the COVID-19 outbreak. It proposes novel options trading strategies to ensure profitability in times of irrational exuberance and to satisfy diverse investment requirements of volatility traders, which arise from the varying levels of stimulating neurotransmitters, namely dopamine and serotonin in the human body. Empirical results show that the incremental information content of sentiment measures is vital in forecasting future volatility and the proposed options trading strategies effectively accomplish the neuro-specific intentions of the traders during extreme volatility in the Indian equity market. JEL Codes: G12, G13

Irrational exuberance and deception — Why markets spin out of control

This article reports on a field study of 457 US participants that identifies the intimate link between three constructs: disconnection (dis-anchoring) from the bundle of needs, goals, and preferences (NGPs), irrationality, and indebtedness. We combine these three mental states that together influence deceitful borrowing behaviors to define irrational exuberance. When using linear regressions and path analyses, we find that together they form a self-reinforcing wheel of misfortune that may spin out of control and generate market frictions, as suggested by US market data. A predatory dynamic drives this loop whereby market agents position themselves at various levels of financial predation (as either predators, prey, or a mix thereof). The theoretical implications of our findings are that we integrate this loop into the literature on debt, something that has not been done before in financial or economic theory. Thus, we enrich the understanding of why market agents – lenders and borrowers alike, either individuals or organizations – mislead each other and why markets consequently tend to deviate from normalcy. The managerial implication is that a better psychological appraisal of borrowers’ mental states and behaviors would likely improve lending risk assessment, may reduce default outcomes, and, on a macroeconomic level, could alleviate the symptoms of impending financial crises.

Irrational exuberance: cuteness as affective bubble in Crazy Ex-Girlfriend and Unbreakable Kimmy Schmidt

ABSTRACT There has been a palpable shift from the studiously unconscious cuteness of the “chick flick” to the semi-conscious cuteness of a strain of contemporary female-led quality comedy and this shift highlights a growing dissatisfaction with contemporary socio-economic and political conditions. More recent series, Crazy Ex-Girlfriend (2015–2019) and Unbreakable Kimmy Schmidt (2015-2019), feature female protagonists whose performances of cuteness expose many of the predicaments, challenges and issues facing the contemporary neoliberal female subject. These series use their dysfunctionally cute heroines to expose contradictions, hypocrisies and double standards in contemporary Western society. The defining trait of the female protagonists is a cuteness linked to overcoming traumatic past events. In this article I will be defining cuteness as a bulwark intrinsically linked to trauma and loss and as a ballast against threat. Both series studiously attempt to transform social abjection into a more palatable cuteness that enables the female lead. However, this cute performance extracts a heavy psychological toll, bringing societal demands into question. Cuteness works as a temporary coping mechanism but is not a viable solution for either female protagonist in the long-term.

The third AI summer: AAAI Robert S. Engelmore Memorial Lecture

The third AI summer: AAAI Robert S. Engelmore Memorial Lecture

Commentary on " Selecting futures: The role of conviction, narratives, ambivalence, and constructive doubt" by Fenton‐O'Creevy and Tuckett (2021)

Commentary on <i>"</i> Selecting futures: The role of conviction, narratives, ambivalence, and constructive doubt" by Fenton‐O'Creevy and Tuckett (2021)

Artificial Intelligence Ethics Taxonomy- Robotic Process Automation (RPA) as Business Case

A Robotic Process Automation (RPA) enabled by Artificial intelligence (AI) has become an important field within the digitalisation of the economy. AI-driven robots and machines are forecasted to grow dramatically in the next years. AI-enabled RPA replaces the work a human would normally do by mimicking interactions with applications and provides direct access to systems using APIs. RPA has superior advantages versus human execution:24x7 execution, eternal lifetime and scalability. Process automatization is per se not a brand-new technology, however due to notable progress in AI, which RPAleverages, it has become an own solution category. RPA enables algorithmic rules without being biased. Ethical considerations intend to make AI-driven RPA more human and introduce morality into the machine learning. The Uber-Waymo trial made transparent how much AI development is influenced by human irrationality and irrational exuberances. It reveals a culture of agile software development, which prioritize releasing the latest software over testing and verification, and one that encourages shortcuts and irrationality. This also give proof that applying AI cannot ensure that irrational exuberances disappear. The reason for this irrational exuberance may have its roots in the exponential growth in computing and storage technologies predicted by Gordon Moore five decades ago. This paper develops a concept how irrational exuberances with the business case of RPA can be prevented from happening. One general approach for solutioning of the issue is to increase transparency. The paper recommends applying technology to make data more accessible and more readable on the application of artificial intelligence. With the aim of application of “transparency technology XBRL (eXtensible Business Reporting Language)” is incorporated. XBRL is part of the choice architecture on regulation by governments (Sunstein, 2013). XBRL is connected to a taxonomy. The paper develops a taxonomy for RPA to make application of artificial intelligence more transparent to the public and incorporates ethical considerations. As a business case the strongly growing RPA industry is selected. The paper focus on the way to enhance AI that aligns with human values. How can incentive be provided that AI systems themselves do not become potential objects of moral concern. The main outcome of the paper is that AI-enabled RPA reveal moral concerns however transparency technologies at the same time also offer way to mitigate such risks.

Forecasting Fund Flows in Indian Equity Mutual Funds Market using Time Series Analysis: An Empirical Investigation

&lt;p&gt;Mutual Funds are the second most preferred financial investment option in India amongst households, corporate and private investors alike. Managed funds bring with them the expertise of fund managers along with the benefits of diversification and lower costs. The sensitivity of fund flows defines the ability of the fund manager in offering expected future returns. Mutual fund flows exhibit time series characteristics, it being financial data collected at regular intervals over a time period. This paper studies the dynamics of mutual fund flows by utilising time series regression modelling. Monthly fund flows data for a sample of 142 equity open-ended growth orientation across major marketcap categories – Large Cap, Large and Mid Cap, Multi Cap, Mid Cap, and Small Cap have been analysed using ARIMA Modelling in the R software package. Appropriate lag length and the presence of a unit root have been investigated with the help of established techniques coupled with suitable checks of robustness. Model of best fit has been used to forecast monthly fund flows for a lag length of 60. Our study leads us to two major outcomes. One, unlike many developed and emerging markets, fund flows in the chosen sample do not confirm to positive feedback trading hypothesis. This lends credible support to the absence of irrational exuberance in mutual fund investments. Second, equity-based funds in Large Cap, Large and Mid Cap, and Multi Cap category exhibit strong trend component while funds in Mid Cap and Small Cap category have a strong random component. Beginner investors can take advantage of alpha offered by fund managers possessing effective market -timing skills, an indicator of trend-investing strategy. Funds belonging to these categories are also lesser prone to market volatility in comparison to Mid Cap and Small Cap funds, being more suitable for experienced investors&lt;/p&gt;

Value versus Glamour Stocks: The Return of Irrational Exuberance?

Value stocks have endured a period of severe underperformance until recently. This article shows that the value spreads between valuations of value stocks and their most expensive peers expanded in all regions and sectors during this period of underperformance, reaching the same extreme high levels last seen at the peak of the tech bubble in 2000. Investors have rerated expensive stocks relative to their value peers, thus reflecting an expanding difference in their respective earnings growth forecasts. There are signs this trend may now have changed. Value spreads may have started a new period of compression at the end of 2020, led by shrinking differences in earnings growth forecasts. A compression in value spreads would be favorable for value stocks, small-capitalization stocks, and multifactor strategies. <b>TOPICS:</b>Security analysis and valuation, analysis of individual factors/risk premia, financial crises and financial market history, performance measurement <b>Key Findings</b> ▪ The spread between valuations of value stocks relative to their expensive peers reached levels last seen in the 2000 tech bubble in every region and sector investigated. This expansion of value spreads explains the recent underperformance of value stocks. ▪ The expansion of value spreads reflected an increasing difference between earnings growth forecasts for expensive and value stocks. Value spreads and earnings growth forecast differences peaked in 2020, suggesting that a regime of value spread compression has begun. ▪ Value spread compression periods are characterized by strong outperformance of value stocks relative to expensive peers and by outperformance of smaller-cap stocks relative to larger-cap stocks. Other sector-neutral styles and their multifactor combinations also do well.

Theoretical Overview of Sentiment Analysis in the Real Estate Market

With the assertion that most empirical studies are underpinned by a theory, this study aims to presents the theoretical underpinnings of sentiment analysis in the housing market. It discussed four main theories namely: the behavioral finance theory, the bubbles theory, the theory of irrational exuberance and the theory of noise traders. To the best of the authors knowledge, this overview is the first in recent past to discuss the theoretical foundations of sentiment analysis in relation to housing prices. The study contributes to the extant literature in the field through the development of theoretical framework and the identification of new research gaps for future research. It has theoretical relevance to researchers and students in the finance fraternity who are beset with or struggling to identify the most appropriate finance theories that underpins their study in real estate sentiment analysis.

Property investor decisions using income and rental ratio signals

PurposeThis paper, a case study, aims to consider whether the income ratio and rental ratio tracks the formation of residential housing price spikes and their collapse. The ratios are measuring the risk associated with house price stability. They may signal whether a real estate investor should consider purchasing real property, continue holding it or consider selling it. The Federal Reserve Bank of Dallas (Dallas Fed) calculates and publishes income ratios for Organization for Economic Cooperation and Development countries to measure “irrational exuberance,” which is a measure of housing price risk for a given country's housing market. The USA is a member of the organization. The income ratio idea is being repurposed to act as a buy/sell signal for real estate investors.Design/methodology/approachThe income ratio calculated by the Dallas Fed and this case study's ratio were date-stamped and graphed to determine whether the 2006–2008 housing “bubble and burst” could be visually detected. An ordinary least squares regression with the data transformed into logs and a regression with structural data breaks for the years 1990 through 2019 were modeled using the independent variables income ratio, rent ratio and the University of Michigan Consumer Sentiment Index. The descriptive statistics show a gradual increase in the ratios prior to exposure to an unexpected, exogenous financial shock, which took several months to grow and collapse. The regression analysis with breaks indicates that the income ratio can predict changes in housing prices using a lead of 2 months.FindingsThe gradual increases in the ratios with predetermine limits set by the real estate investor may trigger a sell decision when a specified rate is reached for the ratios even when housing prices are still rising. The independent variables were significant, but the rent ratio had the correct sign only with the regression with time breaks model was used. The housing spike using the Dallas Fed's income ratio and this study's income ratio indicated that the housing boom and collapse occurred rapidly. The boom does not appear to be a continuous housing price increase followed by a sudden price drop when ratio analysis is used. The income ratio is significant through time, but the rental ratio and Consumer Sentiment Index are insignificant for multiple-time breaks.Research limitations/implicationsInvestors should consider the relative prices of residential housing in a neighborhood when purchasing a property coupled with income and rental ratio trends that are taking place in the local market. High relative income ratios may signal that when an unexpected adverse event occurs the housing market may enter a state of crisis. The relative housing prices to income ratio indicates there is rising housing price stability risk. Aggregate data for the country are used, whereas real estate prices are also significantly impacted by local conditions.Practical implicationsRatio trends might enable real estate investors and homeowners to determine when to sell real estate investments prior to a price collapse and preserve wealth, which would otherwise result in the loss of equity. Higher exuberance ratios should result in an increase in the discount rate, which results in lower valuations as measured by the formula net operating income dividend by the discount rate. It can also signal when to start reinvesting in real estate, because real estate prices are rising, and the ratios are relative low compared to income.Social implicationsThe graphical descriptive depictions seem to suggest that government intervention into the housing market while a spike is forming may not be possible due to the speed with which a spike forms and collapses. Expected income declines would cause the income ratios to change and signal that housing prices will start declining. Both the income and rental ratios in the US housing market have continued to increase since 2008.Originality/valueA consumer sentiment variable was added to the analysis. Prior researchers have suggested adding a consumer sentiment explanatory variable to the model. The results generated for this variable were counterintuitive. The Federal Housing Finance Agency (FHFA) price index results signaled a change during a different year than when the S&P/Case–Shiller Home Price Index is used. Many prior studies used the FHFA price index. They emphasized regulatory issues associated with changing exuberance ratio levels. This case study applies these ideas to measure relative increases in risk, which should impact the discount rate used to estimate the intrinsic value of a residential property.

Artificial Intelligence Ethics Taxonomy - Robotic Process Automation (RPA) as Business Case

A Robotic Process Automation (RPA) enabled by Artificial intelligence (AI) has become an important field within the digitalisation of the economy. AI-driven robots and machines are forecasted to grow dramatically in the next years. AI-enabled RPA replaces the work a human would normally do by mimicking interactions with applications and provides direct access to systems using APIs. RPA has superior advantages versus human execution:24x7 execution, eternal lifetime and scalability. Process automatization is per se not a brand-new technology, however due to notable progress in AI, which RPAleverages, it has become an own solution category. RPA enables algorithmic rules without being biased. Ethical considerations intend to make AI-driven RPA more human and introduce morality into the machine learning. The Uber-Waymo trial made transparent how much AI development is influenced by human irrationality and irrational exuberances. It reveals a culture of agile software development, which prioritize releasing the latest software over testing and verification, and one that encourages shortcuts and irrationality. This also give proof that applying AI cannot ensure that irrational exuberances disappear. The reason for this irrational exuberance may have its roots in the exponential growth in computing and storage technologies predicted by Gordon Moore five decades ago. This paper develops a concept how irrational exuberances with the business case of RPA can be prevented from happening. One general approach for solutioning of the issue is to increase transparency. The paper recommends applying technology to make data more accessible and more readable on the application of artificial intelligence. With the aim of application of “transparency technology XBRL (eXtensible Business Reporting Language)” is incorporated. XBRL is part of the choice architecture on regulation by governments (Sunstein, 2013). XBRL is connected to a taxonomy. The paper develops a taxonomy for RPA to make application of artificial intelligence more transparent to the public and incorporates ethical considerations. As a business case the strongly growing RPA industry is selected. The paper focus on the way to enhance AI that aligns with human values. How can incentive be provided that AI systems themselves do not become potential objects of moral concern. The main outcome of the paper is that AI-enabled RPA reveal moral concerns however transparency technologies at the same time also offer way to mitigate such risks.

Social Media Management: Evidence on Seasoned Equity Offerings

We find that SEO firms receive more favorable messages on the financial social media platform, StockTwits, around the periods 62 trading days up to 10 trading days prior offerings and from 10 trading days after offerings to the expiration of lockup agreements, compared to their non-SEO matching controls. On average, evidence shows that SEO firms ranking in the top quartile of abnormal pre-SEO bullishness on social media reduce their underpricing by 1.12%. Moreover, insiders from active SEO firms exhibit higher net sales in the 90 days following the expiration of lockup agreements. A battery of validity tests rules out Irrational Exuberance and Investor Attention. Overall, our key findings are consistent with the Active Social Media Management Hypothesis.

Veliko resetovanje ekonomije Srbije tokom i posle kovid 19 krize

Since 2020 the modern world has been witnessing a complex crisis, which is essentially a medical crisis (the COVID-19 pandemic) within a structural economic crisis. In addition to the current nexus of risk stressors, such as anthropogenic climate crisis, biodiversity loss, financialization and income inequality, all global and cross-cutting by their very nature, in the last period biorisk has been growing dramatically. The COVID-19 pandemic is a devastating and tragic moment which is rapidly becoming a matter of primary public concern. Social distancing, as the most effective anti-pandemic measure, has pushed the economy into sleep mode. Hibernation provokes a truly systemic economic downturn. The current crisis is particularly deepening structural imbalances of the neoliberal model of capitalism. Core policies responses, such as liquidity infusion and fiscal stimulus, are massive and permanent. Increasing moral hazard and irrational exuberance, such policies are destroying capital markets, as a brain of the market economy. But every crisis is also a chance to change. By tackling the neoliberal capitalism' fault lines in a more effective way, it may actually accelerate the pace to the future we had in mind. A quick restart (or recovery) of the economy and a later rebound require systemic and concerted action in order to mitigate the negative effects of both medical and economic crisis. In managing a complex crisis such as this one, guided by the vision of a sustainable, inclusive and prosperous economy, governments all around the world should take radical reform steps. It means, at least, two things at once. First, dealing with the pandemic as a macroeconomic variable. Second, implementing core economic policies (monetary and fiscal) in a structural way. To do so, the transition from shareholder capitalism to stakeholder capitalism is imminent. An emerging system will combine two institutional choices, the "visible hand" of state (impact investments based on structural or industrial policies) and the "invisible hand" of market forces. It's time to give the government a stronger voice in the economy. To create value instead of redistributing value, the major part of impact investments will be in circular and regenerative economy, health care, infrastructure (physical and conceptual), science, and education. The objective of this paper is twofold. First, to fill the present conceptual vacuum created by the neoliberal doctrine economics rules with the aim of identifying key components of Serbia's economy revival based on its macroeconomic specifics and catalytic impact of new economics rules during and after the COVID-19 pandemic. Second, to highlight the relevance of key components of stakeholder capitalism, including the regenerative and circular model of growth and heterodox economic policy platform for the Great Reset, or recovery and rebound respectively.

Uncertainty, sentiments and time-varying risk premia

Why are stock prices much more volatile than the underlying dividends? The excess volatility of prices can in principle be attributed to two different causes: time-varying discount rates for expected future dividends, arising from variation in risk premia; or the irrational exuberance of investors, bidding prices up and down even in the absence of changes in the underlying value of the asset. No consensus has so far emerged among economists as to the prevalence of one or the other source of price variation. I propose in this paper a novel way to approach this problem, by identifying changes in the uncertainty faced by investors regarding the fundamental value of an asset and exploiting the different response in prices that such changes in uncertainty would generate through sentiments or risk premia. I then apply this framework to the S&P 500 index from 1872 till 2019: the positive correlation found between uncertainty and prices (or, equivalently, the negative correlation between uncertainty and implied risk premia) is not compatible with rational investors' behavior and suggests instead the presence of a significant sentiments component in stock prices.

The Famous New Bubbles of the 21st Century: Cases of Irrational Exuberance

Speculative economic, financial, and cryptocurrency bubbles are not arcane anymore; nonetheless, they are still misunderstood. For this exact reason, they continue to form even centuries after the famous first speculative bubbles of 17th and 18th centuries. Bubbles do not form instantaneously; quite the opposite, they progress through several distinct stages that can be monitored and studied in order to take proper policy actions to avoid costly crises. Speculation, as an economic cycle, fuels investment activity; therefore, it is not entirely bad unless it is done excessively via manipulative actions which ultimately cause panic among investors. Speculation alone does not result in a crash, but the induced fear spiraling through the broader economy like the venom of a poisonous snake can be enough to rattle markets and cause bubbles to burst. Exactly what happened in the famous first three bubbles; the Dutch Tulipmania (1634-38), the Mississippi Bubble (1719-20), and the South Sea Bubble (1720). We all know that history repeats itself; every time it does, the damage is far greater than before. Three centuries after the famous first bubbles, the 21st century began with its own famous three bubbles; the Internet Bubble (the dot.com crisis of 2002), the U.S. Housing Bubble (the subprime crisis of 2006-07 followed by the 2008 global financial crisis), and the Cryptocurrency Bubble (Bitcoinmania).

We Reddit in a Forum: The Influence of Messaging Boards on Firm Stability

The use of messaging boards to instigate coordinated manipulation of stock prices is not a novel phenomenon. However, the growing breadth and sophistication of social media, the widespread availability of technological cloaking techniques, and the ready accessibility of leveraged derivatives have all acted as a significant contributory factor to the growth of the infamous Reddit-based/wallstreet bets forum. Through the use of a lexicon of terminology designed to identify explicit and implicit manipulation attempts, this research presents a number of novel findings. Results indicate significantly positive, pronounced, and persistent abnormal returns in the aftermath of such manipulative events, where results are robust across a number of placebo testing procedures. Such abnormal returns are found to have increased significantly in line with the growth of forum users and the reach of such comments. Significant effects are further identified across tests based on market liquidity and analyst recommendation. While such continued predatory headwinds are most certainly of interest to market-makers, regulators, and policy-makers alike, incited irrational exuberance generated within millennial meme-stocks and sarcastic gifs are found to have played a significant role in disrupting market functionality. The desired outcome for some of these five million monthly forum users is to create enough momentum to trigger algorithmic responses to move out-of-the-money options into a profitable state. Such results present evidence of another potential threat to corporate stability.

Technical analysis: the psychology of the market of dry bulk freight rates

Financial technical analysis of markets and trends differs from fundamental analysis in that econometrics are used on “fundamental” economic data in fundamental analysis. Technical analysis, however, adds to the overall trend analysis an additional examination of the psychology of markets. For freight rate predictions, there has been an exclusive reliance on typical fundamental analysis. Our results indicate that adding technical analysis to freight rate prediction can provide a better overall result. Psychological forces such as “irrational exuberance” or severe bearishness can influence trend predictions making them at best incomplete and at worst inaccurate for predicting the demand for shipping services. Further, ship construction decisions use freight rate predictions. In this paper, we perform a 20-year technical analysis of the BDI/Baltic Dry Index (formerly BFI/Baltic Freight Index) This analysis is a better, richer evaluation of freight rate trends that influence ship construction. Furthermore, technical analysis requires specific in-depth knowledge of the psychology of the market and experience in this type of trend analysis.