(ORDO NEWS) — A team of researchers from the universities of the Ural Federal University, the Dresden Technical University and the Ufa State Aviation University found that not only the coronavirus pandemic, but also mass hysteria provoked by hype on the Internet and social networks, had a negative impact on global stock markets.
Hype and social media hysteria could turn stock market declines in the face of external shocks like the Covid-19 pandemic, scientists warn. The authors claim that this is the first such study in the world.
Its results are described in the journal International Review of Economics & Finance . “Science is well aware that in emergency situations, people are prone to extreme mood swings and decision-making in a state where emotional reactions prevail over rational ones.
The ability to think and act rationally weakens even when an individual, falling into the crowd, becomes infected with a “hysterical illness”, mass psychosis. These problems have long been developed by science within the psychology of the crowd.
Recently, it has been found that the laws of crowd behavior apply to online communities as well.
Our task was to find out to what extent the phenomenon of the collective unconscious, hype and hysteria determines the behavior of stock market participants, whether it can influence market volatility and to what extent modern media can provoke such effects,” explains a member of the scientific team, associate professor of the Department of International Economics and Management UrFU Alexander Nepp.
To do this, the scientists traced the dynamics of stock market indices in the USA, Great Britain, Germany, France, Spain, Italy and Japan.
Then the specialists developed economic and mathematical models based on statistical data on the incidence of Covid-19, the number of reports about it in electronic and print media, the number of relevant queries in the Google search engine and publications on the social networks Facebook, Instagram and Twitter.
The analysis covered the period from December 30, 2019 to April 30, 2020, when there was the first outbreak of the coronavirus and a surge in information about it.
It turned out that from mid-February to mid-March, the incidence provoked an outbreak of discussions of the pandemic in digital and print media, an explosive increase in the number of search queries on this topic on the Internet and activity on social networks.
Based on the developed economic and mathematical models, scientists, firstly, revealed the negative impact of social networks on the volatility of stock market indices.
Secondly, they found the effect of hype and hysteria, which manifested itself in an explosive short-term increase in the impact of social networks on the volatility of stock indices.
Thirdly, we found that the influence of the mass media and the detected effect of hype and hysteria were comparable, and sometimes even exceeded the effect of the pandemic itself.
“Moreover, the press, like Instagram, which is popular with young people, had the least impact on the state of the stock markets. Most of the excitement was driven by a surge of Google searches, Facebook discussions, and Twitter posts.
It can be argued that this time social networks played an important role in unwinding the hysteria and influenced the markets more than classical factors such as the price of oil and gold.
At the same time, the hype effect was observed even before the peak of the pandemic, and after the short-term interest in the topic receded, it began to wane and eventually disappeared,” emphasizes Alexander Nepp.
Thus, the researchers concluded that during a pandemic, the media and social networks can infect the audience with panic, provoke mass hysteria, causing irrational behavior of stock market participants and, as a result, an increase in its volatility and fall.
“The positive side of the analyzed events is that, assessing the sad experience of the first victims of the pandemic and media hysteria, for example, Italy, the most prudent national governments and regulators, such as the United States, took early and prompt measures to support problem industries and stabilize stock markets.
At the same time, it is becoming clear that volatility can be caused not only by such objective reasons as a pandemic, but also by reactions to them in the media and social networks. Both the authorities and investors need to be prepared for this.
For the first, we recommend conducting an effective information and explanatory counter-campaign, for the second – to remember that the detected effects, although significant, are short-lived, ”concludes Alexander Nepp.
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