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

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.

Relating group size and posting activity of an online community of financial investors: Regularities and seasonal patterns

“…First, as we did not have the number of online users over time, we computed the number of active users only by counting those who wrote at least one post in the specified time interval. Secondly, we controlled for the effect of market volatility -which was found to be pivotal in driving online investors' behaviour [28] -while in principle we could have added other financial variables (e.g., financial stability and liquidity indices) as controls. Finally, we looked at the overall number of posts disregarding the quality of each contribution.…”

“…The hourly activity on the forum was characterized by circadian patterns and also showed inter-day noise, partly due to a day-of-the-week effect and to exogenous market forces. In this regard, given the role of uncertainty in affecting users' behaviour [28], we used the daily Euro Stoxx 50 Volatility Index time series to take into account the level of volatility perceived by investors on the European markets. Fig.…”

Adaptive Heuristics That (Could) Fit: Information Search and Communication Patterns in an Online Forum of Investors Under Market Uncertainty

“…This typically occurs when investors have sequential exchange of opinion by quoting and requoting previous information, which is often used to reassure about a belief regarding, for instance, the expected value of a stock or certain complex market trends or news. Uncertainty about the most appropriate interpretation is solved by relying on other users whose opinion has been previously considered (Ashton & Ashton, 1988;Casnici et al, 2015). Figure 4 shows the distribution of citations by a selected user (#31654).…”

“…. While these sequences of communication with preferential users can help to develop common understanding of market events and news, they could also lead investors to reduce information search (Campbell & Sharpe, 2009;Casnici et al, 2015).…”

“…An example of this is Casnici, Dondio, Casarin, and Squazzoni (2015) who found that the investors' communication networks react to market trends in different ways. While less turbulent market phases imply less communication, higher market volatility generates more complex communication patterns.…”