Mon. Dec 6th, 2021

In 1944, two psychologists showed their students a simple film that reflected a large triangle, a small triangle, and a ball that looked like a schematic layout of a house. The results was fascinating – and relevant to today’s markets.

The students of Fritz Heider and Marianne Simmel feel overwhelming that the big triangle is bullying the other forms, representing their emotions and even constructing a plot around what is going on. The experiment illustrates how people can find narratives almost everywhere, no matter how convoluted it is built.

Narratives are important and have always been very important to markets. Nobel laureate Robert Schiller even wrote a book about how the stories we tell ourselves can have economic consequences. But in recent years, an abbreviated, modern form of storytelling – the internet meme – has grown and developed deep roots in markets, from an attempt to capture reality to help distort it.

Memes are easily digestible and shareable images or videos, often in the form of a screenshot from popular culture, customized with personal captions to send myriad messages, from amusing self-addiction to arch-political commentary.

This may seem ridiculous, but financial memes can probably form perceptions just like extensive investment bank reports or newspaper opinions. Probably more so among younger generations with less patience for long-winded, intoxicated traditional news and analysis. If a meme spreads, it can have a big impact at a time when retail is a rising force in markets.

“One share from one small account is unlikely to do much, but if it’s a real effort and goes viral, there’s a possibility of driving the share price up,” said a prominent ‘meme gentleman’, who is known stand as Liquidity on Instagram where he has more than half a million followers. He refused to give his real name.

Memes have long been central to the rise of various cryptocurrencies, but its impact is also being felt in the mainstream markets. This is most clearly highlighted by the chaos surrounding a number of meme-friendly stocks accepted by a horde of online retailers this year.

The line chart of the rise in the share price to date (%) that AMC and GameStop show remains the heaviest trade "meme shares"

Shares in video game retailer GameStop and cinema chain AMC have risen more than 1,000 percent and 2,600 percent respectively this year, giving them a combined market value of $ 46 billion, overwhelmingly thanks to meme-inspired trading by young retail investors loosely social media is organized. websites.

For now, it is mainly a factor in the niche corners of the market. But it’s a wider phenomenon than just the classic “meme stonks”. Memes also fueled the boom in so-called special-purpose vehicles and, probably in a modest way, even affected the broader stock market, illustrated by Tesla’s market crashing run. Nearly half of the 1,500 individual investors surveyed by the Betterment advisory group said they invest in equities based on social media.

Kyla Scanlon, a young former industry insider who is now creating TikTok Videos explaining finances to younger generations is among those who are fascinated and concerned about thememefication“From markets. She notices the sense of community it produces, but also how it displaces the reality of valuations. “We have this short-lived content to help us process larger narratives,” she says. “And I think it’s going to keep popping up in the stock market.”

Another pseudonymous financial member known as Dr Parik Patel – which has gained more than 300,000 followers on Twitter in less than a year – mostly sees it as fleeting entertainment at a difficult time for many people. That said, he noticed how they spread far beyond the boundaries of his world. “I have friends who work in completely unrelated areas to finance, and who had no interest in the pre-pandemic in the industry, who are now trading their own portfolios and following the hottest financing pages,” he says.

Bar graph of respondents in improvement survey (%) "How do you decide which stocks to invest in?"

How durable is this phenomenon? It seems unequivocally linked to how manic markets was in the post-Covid era. Scanlon and Patel reckon that it will probably fade as soon as the evil finally evaporates.

Liquidityis concerned, however, that the growing appreciation for using social media to make money means that the change in the market may be more resilient than many people expect. ‘I think it’s not a good thing, but I think it’s not going anywhere unless it’s kind of regulations put in place, ”he says.


Twitter: @robinwigg

What do you think about the proliferation of financial memes and the impact they have on markets – or are they not? Let us know in the comments below.

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