The U.S. equity markets are reaching highs not seen since 2007, and while such strength is a good thing, all that market heat is also driving poor trading behavior due to news reports and the pump-and-dump world of social media, warns the behavioral economics consultancy MarketPsych.
While price forecasts in the news media can create outsize profitability patterns in the markets, social media creates a "primal" form of influence over market prices, says MarketPsych Managing Director Richard Peterson in a March 16 blog post, "New Highs! Stock Promoters, Media Manipulation and Timing Price Reversals."
"We see that investors who follow predictions in both the news and social media lose significant amounts of money," writes Peterson, a Santa Monica, Calif.-based medical doctor and psychiatrist with expertise in behavioral finance. "Inversely, those who play against the media do much better."
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