Noise is unwanted sound. For investors it is those pieces of data, stories, or even price moves, which may seem like information but actually tell us nothing about the future returns of an asset. Trading on noise can be hazardous to your wealth.
In Market Corner we hope to identify examples of noise which may be prevalent in an era of exponentially growing data and obsession with the short term. Why? To try not to fall victim to noise in our own decision making. Because human beings love stories noise can be highly seductive. We must always be on our guard and looking for examples of noise is just one step towards doing this.
From the Financial Times this month:
“The tranquillity of Wall Street’s ‘Fear Gauge’ continues to baffle investors, given the market uncertainty”
Financial commentators and journalists – who are just as prone to herding as investors themselves – have brought attention to the ‘volatility paradox,’ the apparent disconnect between… Read the article
Behavioural Finance Markets
Yesterday the UK Prime Minister Theresa May gave a speech at Lancaster House which outlined potential objectives for the country’s Brexit negotiations. In it, she presented a Brexit plan that suggested a more meaningful break with the European Union than many of the possible options.
So why did Sterling strengthen… Read the article
It seems apposite that Matteo Renzi’s term as Italian Prime minister should end in this way. For investors, this referendum was a surreal distraction. The population were voting on the nuance of domestic decision making, but Eurozone membership means that there is limited scope for those decisions to impact the… Read the article
Thirty years ago today, the rules governing the London Stock Exchange changed, ushering in the “big bang” in the UK. The move was in part a response to concerns that London risked losing its pre-eminence in the world of finance to cities like New York.
The effect of the big… Read the article
Humans like to think they know more about things than they really do. This is perhaps more true in finance than elsewhere, because the abundance of data lends itself to analysis, pseudo-science, and experts.
One of the data points that draws most attention is the US non-farm payrolls, which is… Read the article
Markets have recently experienced some heightened volatility, which at times has been explained by commentators as being due to the changing expectations around the outcome of the UK referendum. Last week, equity markets globally experienced losses, while ‘safe haven’ assets, such as G7 government bond markets, rallied. The biggest currency… Read the article
Behavioural Finance Markets
All over the UK and Europe fund managers are being asked for their views on Brexit. Many will answer: ‘we don’t forecast.’ The more ambitious might add: ‘markets don’t like uncertainty, so volatility might create opportunities.’
As human beings we find these same old clichés deeply unsatisfying; we want to… Read the article
In Robert Louis Stevenson’s short story “The Bottle Imp” a man is sold a demonic bottle which grants the owner the power to gain all he desires. There are just two catches; first, if he should die with the bottle still in his possession he will be condemned… Read the article
‘When markets move a lot there must be a reason why.’ Most of the time this mind-set works well for us: there is an earnings announcement, policy decision, or macro data release, and markets appear to respond (sometimes) in the way you would expect.
Other price moves are not so… Read the article
We define episodes as phases where emotion drives asset prices. It is a name that has come in for criticism: some think it has associations with mental disorder; others think of TV shows. It doesn’t score well in marketing focus groups.
But we think it is an apt description of… Read the article