What is it about?
We analyzed data collected from retail investors in the Chinese stock market from a Fintech mobile platform to find evidence of the self-fulfilling prophecy effect. We found a statistically significant correlation between the predicted and actual Shanghai Stock Exchange Composite Index (SSECI) as well as non-random deviation patterns. We also analyzed participating investor behaviors and discussed the implications and future research.
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Why is it important?
Recent progress in behavior finance already found the importance of understanding investor behavior in identifying market dynamics. This study specifically indicated that the self-fulfilling prophecy effect could be utilized in a highly speculative market, which could help capture an important market turning signal.
Perspectives
Industry practitioners could consider creating a crowdsourcing stock index futures market, as the Iowa electronic market or HSX. Such a market could encourage investors to put down a small amount of money as their bet on their prediction. As an incentive, investors would receive the monetary reward if their prediction is within the range of accuracy. Such an information market would generate a future stock market movement index, complementary to the index like SSECI. Such a future market allows us to eliminate all non-committal data contributors and dramatically increase data quality. The S&P Volatility Index in the United States is an excellent example in such a direction.
Professor Yun Wan
University of Houston Victoria
Read the Original
This page is a summary of: An empirical study of the self-fulfilling prophecy effect in Chinese stock market, The Journal of Finance and Data Science, June 2019, Elsevier,
DOI: 10.1016/j.jfds.2019.04.001.
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