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Financial Markets: Values, Dynamics, Problems

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AI in the Financial Markets

Part of the book series: Computational Social Sciences ((CSS))

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Abstract

The 2020 global stock market crash triggered by the coronavirus outbreak has led to an intertwined and still unfolding series of social, economic, and financial consequences. We will review several aspects of the recent pandemic crisis and critically compare them to extant findings on the effects of financial breaks, fear, and turbulences (global financial crises, terrorism, and previous pandemics) on financial markets. With the increase of uncertainty and volatility, the Covid-19 pandemic also affected investors’ risk attitudes, trust, and confidence. We will provide insight into these behavioral aspects and how they ultimately affect financial decision-making. Moreover, a unique side effect of the government restrictions is the unprecedented increase of digitalization: never before have global citizen of all ages been cornered into using online services and digital tools. We will discuss the implications of this new phenomenon for the financial market, its effect on social inequality, and the scenario of opportunities it entails.

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Notes

  1. 1.

    Ramelli and Wagner 2020 describe the evolution of the capital market reaction to the outbreak, recognizing three phases: Incubation (Thursday January 2 to Friday, January 17), Outbreak (Monday, January 20 to Friday, February 21), and Fever (Monday, February 24 through Friday, March 20).

  2. 2.

    https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-impact-of-covid-19-on-capital-markets-one-year-in.

  3. 3.

    In February 1957, a new influenza A (H2N2) virus emerged in East Asia, triggering a pandemic (“Asian Flu”). It was first reported in Singapore in February 1957, Hong Kong in April 1957, and in coastal cities in the United States in summer 1957. The estimated number of deaths was 1.1 million worldwide. https://www.cdc.gov/flu/pandemic-resources/1957-1958-pandemic.html.

  4. 4.

    The 1968 pandemic was caused by an influenza A (H3N2) virus. The estimated number of deaths was 1 million worldwide. https://www.cdc.gov/flu/pandemic-resources/1968-pandemic.html.

  5. 5.

    Rational expectations were proxied with growth rates from the exponential fit and an epidemiological model for the spread of diseases (SIR model for susceptible-infectious-recovered). Even though this approach represents the best proxy for rational expectations, the authors underline that rationality here is, in fact, bounded as these models might turn out to be incorrect and lead to non-rational outcomes.

  6. 6.

    Computer-assisted telephone interview.

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Authors and Affiliations

  1. Department of Economics, University of Modena and Reggio Emilia, “Marco Biagi”, Via Jacopo Berengario, 51, 41121, Modena, Italy

    Juliana Bernhofer

  2. Department of Economics, Ca’ Foscari University of Venice, Cannaregio 873, 30121, Venezia, Italy

    Juliana Bernhofer

  3. Università degli Studi di Padova, Via del Santo 33, 35123, Padova, Italy

    Anna Alexander Vincenzo

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  1. Juliana Bernhofer
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  2. Anna Alexander Vincenzo
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Correspondence to Juliana Bernhofer .

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Editors and Affiliations

  1. Laboratory of Agent Based Social Simulation, Institute of Cognitive Sciences and Technologies-National Research Council, Rome, Italy

    Federico Cecconi

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Bernhofer, J., Alexander Vincenzo, A. (2023). Financial Markets: Values, Dynamics, Problems. In: Cecconi, F. (eds) AI in the Financial Markets . Computational Social Sciences. Springer, Cham. https://doi.org/10.1007/978-3-031-26518-1_3

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  • DOI: https://doi.org/10.1007/978-3-031-26518-1_3

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