Exeter Economics Review

The Student Vision of the World Economy

Finance

Market Sentiment Analysis: How Emotional and Psychological Factors Influence Financial Decision-Making 

Brain, the most complex structure known to man, has been programmed from birth and developed in a society where we were almost exclusively concerned with our survival. Still at present, with this same tool we have to face decisions about savings and investment, for which our brain is not prepared and often falls into different traps or behavioral biases. Our state of mind also affects our financial decisions more than we think. People do not always make choices in a rational manner and economics is no exception.The study of these biases is what financial psychology or behavioral finance is dedicated to. Financial planning, especially as consumers get older takes on a greater level of importance. Research from Dr. Mariann Weierich showed that financial decisions can be as much as 90% emotional, and only 10% rational.. 

Identifying market turning point using sentiment analysis 

Yes, sentiment analysis can be harnessed as a trading strategy as it helps to provide insights into the overall market psychology and bias. Traders leverage sentiment extremes to identify potential turning points and inform counter-trend trade entry or exit timing. The impacts of the market sentiment cannot be overemphasized as it drives demand and supply, which in turn leads to price movements. Traders can best combine market sentiment indicators with trading frameworks or other forms of analysis in order to refine entry and exit signals. Several indicators can be used to detect changes in the market Sentiment. These indicators measure market sentiment to help marketers determine the best stocks to trade, including the CBOE Volatility Index (VIX), the high-low index, the bullish percent index (BPI), and moving averages.. 

Impacts of social media and online platforms on market sentiment 

Social media marketing provides an unprecedented opportunity to communicate with consumers, connect with a worldwide audience and build a loyal audience. Beyond brand recognition and reach, social media marketing significantly influences customer relationships, revenues and overall business performance. Social media and online platforms can influence the trading volume of a stock. Positive reviews, comments and sentiments on social media can lead to an increase in demand for a particular product which can boost its recognition , increase its demand and increase its profits. Negative sentiment, on the other hand, can lead to a decrease in demand for a product, which can drive down its demands and its profits . However, determining social media data into a sentimental analysis model can be challenging especially when analyzing them through algorithms and machines. Interpreters can find it tasking when interpreting human emotions which involves recognizing subtlety, sarcasm, irony, and sensitivity to context and language skills. These elements are what make human communication rich and meaningful.. 

Factors that influence financial decisions making 

Several factors influence decision making. These factors, including past experience, cognitive biases, age and individual differences, belief in personal relevance, and an escalation of commitment, influence what choices people make. Understanding the factors that influence the decision making process is important to understanding what decisions are made. That is, the factors that influence the process may impact the outcomes. Making sound financial decisions requires a systematic approach and careful consideration of factors such as gathering relevant Information from credible sources before making a decision, considering multiple alternatives and evaluating their potential outcomes. It’s also important to know that while short-term gains may seem appealing, consider the long-term consequences of your decisions. Assess how each choice aligns with your overarching financial goals and objectives.. 

Market sentiment and economic indicators 

Market Sentiment and economic indicators are two of the most important tools used to monitor the health of the economy. While economic indicators like GDP, inflation, and unemployment rates provide a quantitative measure of economic performance, sentiment indicators like consumer confidence, business sentiment, and investor sentiment provide a qualitative measure of how people perceive the economy. However, it is important to state that there is evidence of correlation between sentiment and stock market movements. This sentiment captured could be used as a signal to predict market returns, but this doesn’t apply to market volatility. 

How monetary policies influences market Sentiment 

Recent research has found that monetary policy works in part by influencing the risk premiums on both traded financial-market securities and intermediated loans. Research has also shown that when risk premiums are compressed, there is an increased likelihood of a reversal that damages the credit-supply mechanism and the real economy. Together these effects create an intertemporal tradeoff for monetary policy, as stimulating the economy today can sow the seeds of a future downturn that might be difficult to offset. We draw out some implications of this tradeoff for the conduct of monetary policy. (Kashyap, Anil K, and Jeremy C. Stein. 2023. “Monetary Policy When the Central Bank Shapes Financial-Market Sentiment.” 37 (1): 53–76.”) Incorporating market sentiment analysis into your trading plan offers several advantages which include gaining insight into market psychology and bias, Identifying extremes in investor emotion and sentiment, and Spotting divergences between price action and sentiment. Understanding the mindset of marketers and investors can give traders an edge in determining when a trend may be exhausting itself or a reversal is likely. Sentiment often moves ahead of fundamentals and technical factors.. 

How firm corporate governance practices influences market Sentiment 

Corporate governance is related to the way the company is controlled and administered, it is an important part of strategic management that can improve a company’s performance. Value creation and competitive advantage are common objectives on a long-term basis for corporate governance and strategic management. Corporate governance leads the company to have high liquidity value which may attract investors to buy the company’s shares listed on the stock market . It is important to note that investment choices can be impacted by a wide range of external and internal variables, such as the economy, market trends, and one’s own personal situation. One of the key factors that can influence investment decision-making is the state of the economy.. 

Using sentiment analysis to evaluate the effectiveness of marketing campaign 

It is important to know that, promotion, price, place and product serves as key basis and cornerstone for marketing strategies. Sentiment Analysis can be used in different ways, both for industry and government, and is especially well suited for measuring marketing campaign performance quantitatively and qualitatively. 

Measuring key Marketing Campaign Effectively can be done using different marketing analysis tools and key performance indicators (KPIs). This tool helps to determine or know online searchers, their conversion rates, and customer feedback which all enable marketers to assess a campaign’s effectiveness, determine return on investment (ROI), and optimize future campaigns for success..