- 10 48 5 M Ba Hd 4 4g 4 82 Section B 11 Behavioral Finance Beyond The Markets A Real Time Case Study Of Russia S Mil 1 (121.34 KiB) Viewed 238 times
10:48 5 M © BA HD 4 4G 4 82% Section B 11. Behavioral Finance Beyond the Markets: A Real-Time Case Study of Russia's Military Resurgence One of the preeminent contributions of the field of behavioral finance is the realization and substantiation that mood and emotion influence the behavior of decision makers in financial markets. Hall's prescient study of Russia's social mood and its implications demonstrates the utility of socionomic theory for anticipating the degree to which social mood manifests not only in financial market indexes but also across the full spectrum of human social behavior Hardly a day passes without another reminder in the media that relations between the U.S. and Russia are at their most tense since the Cold War. Such was not the case just ten short years ago when Russia was a darling among Western investors. Its benchmark stock index, the RTSI, was up more than 5000% from its 1998 low. A pop song called "A Man Like Putin" rocketed up the Russian pop charts (PBS 2012). Moscow had more billionaires than any city in the world even though just 15 years prior it didn't even have one millionaire. Fortune magazine wrote, "These days more and more CEOs are livin' la vida BRIC [Brazil, Russia, India and China)". The RTSI is following its net downward trend from its 2008 high contimously Socionomists use stock indexes as indicators of social mood. Positive social mood trends motivate advances in the stock market, and negative social mood trends motivate declines in the stock market. The researchers have validated this methodology by independently showing that changes in social mood, as registered in changes in the aggregate sentiment expressed on online social media platforms, are positively associated with subsequent changes in national stock market indexes. Among other potential metries of social mood, the stock market is especially valuable because investors can reprice stocks almost immediately in response to changes in social mood Other mood-motivated actions, such as those that lead to fluctuations in business activity, election outcomes, climates of peace or war, and the tone of popular entertainment, take longer to execute than stock trades and therefore tend to lag the overall trends of stock market indexes Socionomic causality offers a useful basis for predicting the tenor and character of social actions. It is especially forward-looking when employed in conjunction with an accurate stock market forecast. Although myriad market forecasting approaches exist, in his study of Russia, Hall applied Socionomic approach The study observed that In May 2008.. the RTSI peaked and then plummeted 79.9% into January 2009. During the initial stages of this decline, tensions reignited between Russia and Georgia. In late May 2008 Russia sent several hundred troops to Abkhazia (an internationally recognized though disputed territory of Georgia) reportedly to conduct railway repairs. Georgia suspected Russia was planning a military attack (The New York Times 2008). Just two months later, as the RTSI fell sharply. South Ossetian separatists began attacking Georgian peacekeepers. Georgian President Mikhail Saakashvili directed troops into South Ossetia (another disputed territory of Georgia), and Russia began air strikes there (CNN 2015). In mid-August, Georgian and Russian leaders signed a ceasefire agreement, yet Russia did not withdraw the bulk of its forces until later in the year <
10:48 DEM @ HD 4G 82% What happened during Ukraine Conflict? The RTSI made a low in late Jamary 2009 and rallied into 2011. Consistent with socionomic theory, Russia did not engage in any armed conflicts with any external nations or territories during this period. The downtrend in the RTSI resumed in April 2011, and the index plunged 45% through February 2014. The renewed decline signaled a continuation of the trend toward negative mood, which increased the probability for subsequent conflict. But where would Russia direct its aggression next?Socionomists addressed this
question in real time. Hall's colleague, Robert Folsom, noted that tension was increasing between Russia and Ukraine at a time when stock indexes in both countries were undergoing sizeable declines. On December 9, 2013, Folsom issued the following commentary on the potential for Russia-Ukraine conflict: Negative mood is now driving Ukraine's politics, foreign relations and financial system (its stock market is down some 75 percent). The country is wedged economically and geographically between West and East, and its neighbor to the east is particularly unlikely to tolerate much more instability before intervening Russia did intervene in Ukraine. It began its occupation of the Crimean Peninsula less than three months after Folsom's forecast. In Senate Armed Services Committee confirmed the same in July 2015. U.S. Joint Chiefs of Staff Chairman Joseph Dunford stated that official U.S. military intelligence and defense strategy "did not fully anticipate growing Russian aggression" even as late as early 2014. He not only anticipated growing Russian aggression but also recognized a serious implication of the conflict in Ukraine. His article titled "Ukraine: The Geographic Center of a New Cold War?" showed that he understood that any emerging conflict could serve as the focal point for a wider renewal of hostility and tension between Russia and the West. Folsom's analysis is particularly illustrative of the utility of the socionomic perspective, as opposed to traditional forecasting methods. Consider that the degree of Russia's aggression evaded Pentagon planners with access to untold volumes of intelligence, yet Folsom was able to diagnose the elevated probability of Russian intervention in Ukraine with only three tools: socionomic theory, a couple of stock index charts and an awareness of the political landscape. Answer the following
questions: (7.5+7.5+10-25) a) As referred in the case, explain What is "socionomic causality in financial markets? b) Folsom's analysis is particularly illustrative of the utility of the socionomic perspective, as opposed to traditional forecasting methods. Conuent on the
statement. c) Which biases can be related with the phenomena i.e relation between stock market an Military Resurgence? <