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Today, the information tools we use to decide how to invest capital are not sufficient to achieve consistent results.
This is because we do not have total control of all the factors that give us a complete overview of the market. When we try to predict the direction of that the financial markets, we exclusively use logic. We look at values like price and quantity and use rational indicators like moving averages and oscillators.
While this is useful information, alone they give only a partial view of the market.
Emotional factors such as fear or excitement have an undeniable influence on the stock market. Emotions like over enthusiasm can generate dangerous asset bubbles, and conversely the fear can generate volatility and sudden price spikes.
Often emotions can drive markets more than logic. But, today there is no reliable indicator to qualitatively and quantitatively measure a well-defined emotional component.
Ignoring the emotional factors that can drive the market can lead to disastrous effects on investments.
In order to bridge this gap, today rudimentary tools such as market sentiment are used sort of index that expresses a "positive" or "negative" feeling.
The problem with this “binary” approach is that it does not provide a useful measure of the emotions in the market, and often provide no predictive indication.
A “negative feeling” would be detected in the markets both when fear prevails between investors irrespectively of the rumors begin true or not, or when confidence prevails among investors that the that the asset prices are inflated.
In the above mentioned situation at first glimpse with a superficial “Sentiment analysis” you would have two equally negative outcomes and you would not be able to distinguish between the two different moods of the markets. On the other hand, the 'Emotional' analysis is profoundly different. It can lead to very different effects – such as a varying magnitude of volatility – hence to different types of risks and investment opportunities.
The tools many investors use today, such as the "Sentiment", are not an effective answer to understand the prevailing emotions in the markets.
Flowtech is an analytics platform that provides 10 different emotional indicators which qualitatively and quantitatively describe the emotions that drive the financial markets. This has become possible thanks to the application of the most advanced artificial intelligence technologies.
Each index measures an specific market emotion such as fear, confidence or expectations, and provides an analysis that is perfectly complementary to those already in use today. This can be extremely effective when supporting investment decisions.
You can create new strategies, which combine traditional indicators, like moving averages, and emotional indicators, like fear or confidence.
You can also monitor how investors will react emotionally and predict their reactions to the markets, supporting effective investment decisions and revealing hidden risks or opportunities.
ACTIAM is the leading responsible fund and asset manager, with over € 50 billion in assets under management. They offer a comprehensive range of investment funds and investment solutions that extends from index investing all the way to impact investing.
Actiam uses flowtech Financial Markets Emotional Insights to support their investment decisions and monitor the emotions that drives the markets.