StudentShare solutions
Triangle menu

Sentiment in financial markets - Essay Example

Not dowloaded yet

Extract of sample
Sentiment in financial markets

But if you have no feel for what the expectational environment is, you're kind of flying blind. You might have a good feel for the fundamentals and the technicals, but very often it's the expectational backdrop that makes the difference.
For example, many investors are frustrated because they own a stock and the stock's earnings meet or perhaps even exceed expectations. And lo and behold, the stock goes down and people are at a loss to explain why. But for other stocks, the earnings come in and exceed expectations, and the stock skyrockets. Why the difference
The reason is sentiment. Very often, the sentiment had been excessively bullish before the positive earnings report. In the days before the announcement, there may have been a heavy accumulation of call options. So there is a lot of anticipatory buying of the stock, which then pretty much has run its course when the earnings come out.
But with these and other measures, you must wait until they get to some kind of extreme level before they carry contrary implications. For example, when everybody who could potentially be bullish is already bullish, then essentially most of the buying power in that particular market has been dissipated. At that point, the market becomes very vulnerable to selling because there isn't enough buying to offset the selling.
Similarly, if only a very, very smal...
Perhaps they have even shorted the market. That means the market has become more primed to move upward because if buyers should come in they will not encounter much selling pressure because the selling has already occurred.
So imagine a poll today that says 80 percent of futures traders are bullish. Remember that people, whether futures traders or individual investors or market-letter writers, tend to be trend followers. Their opinion tends to be a reflection of what's going on in the market.
So if 80 percent are bullish that doesn't mean that the market is at its peak. No. 1, you would expect them to be bullish, and, No. 2, they can always get more bullish.
I think this points out a trap that the bears have fallen into. They've noticed signs of bullishness, namely the amount of money that's flowing into mutual funds, the investment clubs, the Beardstown Ladies' books and so on. You get into trouble when a market is in a powerful technical trend and you analyze it without reference to the fact that you expect people to be bullish in a bull market.
When a stock rises on positive earnings, which also occurs often, there may have been a lot of concern about the earnings report and investors may have bought a lot of put options, or shorted the stock.
Without a measure of sentiment that is accurate, you can go down all kinds of blind alleys. Some of those who have been bearish on the stock market will tell you that there are many more investment clubs than there were 15 years ago, or that mutual funds now outnumber the stocks on the Big Board. These are all good cocktail-party things to talk about, but they're not really measures of sentiment that have parameters associated with them. They're just anecdotal.
Academic ...Show more

Summary

The market sentiment is the intuitive feeling of the investment community regarding the expected movement of the stock market. For example, if market sentiment is bullish, then most investors expect an upward move in the stock market.
Investor sentiment is simply the collective feelings, moods, beliefs and in some cases actions of a particular body of investors…
Author : knikolaus
Sentiment in financial markets essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Sentiment in financial markets"
with a personal 20% discount.
Grab the best paper

Related Essays

Financial Institutions & Markets - Financial Innovation
can be supposed to be the attributing factors towards the development of financial innovation. Innovations are mainly done to achieve the basic objectives of financial systems like facilitating the required payment instruments, increased savings, reduction in costs, etc.
6 pages (1500 words) Essay
Financial Markets
Therefore, any modeling of financial assets is directed towards the reduction of the uncertainties & risks involved with the value of an asset or the pricing agreements that govern the variation of the determinants of financial assets' evaluation. Therefore, any such evaluation is performed so s to strike a perfect balance between the non-risky assets and the non-risky assets.
4 pages (1000 words) Essay
International Financial Markets Essay
This increases the demand of host country's currency and hence the host country's currency appreciates at the expense of the multinational's local currency. When many multinationals carry out FDI, the impact is quite bigger and hits the financial markets harder.
1 pages (250 words) Essay
Investor Sentiment Explanation
Nevertheless, considering the fact that other economic theories are less helpful at explaining the closed-end fund puzzle, behavioral theory should be recognized for providing the most integral explanation from all theories.
5 pages (1250 words) Essay
Financial markets
In early November 2009, Australian government raised the interest rate for second time to tighten the monetary policy. This is expected
6 pages (1500 words) Essay
INTERNATION FINANCIAL MARKETS
They are of the view that there must be stricter norms for controlling the flow of capital. However, other economic experts like Fischer, (1998) and Summers, (2000) argue that development of
10 pages (2500 words) Essay
Financial Markets
Other organizations of such type are the following ones: a) the Financial Services Agency – in Japan, b) the ‘Autorité des marchés financiers’ – in France, c) the China Securities Regulatory
4 pages (1000 words) Essay
Financial Markets and Institutions
Bonds offered by governments and local authorities are called treasury bonds, while those offered by institutions are called corporate bonds. The bonds have an interest that it pays so
2 pages (500 words) Essay
Financial markets
Remarkably, the financial markets facilitate the connection between the well-developed financial institutions and the borrowers who want to invest more than they earn, which suits the needs of the savers and borrows; hence,
3 pages (750 words) Essay
Assess the importance of institutional investors for financial markets
tutional investors who invest in securities include insurance companies, banks, mutual funds, hedge funds, pension funds, investment advisors and operating companies that invest a percentage of their profits on investment assets. According to Deng and Xu (2011), institutional
8 pages (2000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation