The 2008 Crisis from the Neurofinance Perspective: Investor Humor and Market Sentiment

The world is still facing a financial crisis that started in mid 2007 and up to moment it is unsolved. Stock markets around the world reacted badly and the real time news has never played such an important role to investors as seen in previous crises. The impact of the media deepened the bear dynamics of markets around the world amplifying their volatility. Neurofinances is a new field of inquiring that has the purpose of studying decision making taking into consideration the role played by emotion. Here, we use these notions to develop a neurofinance modelling of the Brazilian stock market assuming that the investor humor is dependent on the ratio between perceived benefit and risk, as well as market sentiment. Market sentiment, in turn, is proposed to be sensitive to the kind of news delivered by the media. The model is used to study the BMFBovespa index (Ibov) evolution from January, 2003 to September, 2010 in order to test if these hypotheses hold and whether market sentiment is sensitive to an index of Good/Bad news about Ibov. Results supported present propositions.