The Mystery of Market Movements

A quantifiable framework for unlocking the unconscious forces that shape markets

There has long been a notion that subliminal forces play a great part in causing the seemingly irrational financial bubbles, which conventional economic theory, again and again, fails to explain. However, these forces, sometimes labeled ‘animal spirits’ or ‘irrational exuberance, have remained elusive - until now. The Mystery of Market Movements provides you with a methodology to timely predict and profit from changes in human investment behaviour based on the workings of the collective unconscious.

Niklas Hageback draws in on one of psychology's most influential ideas - archetypes - to explain how they form investor’s perceptions and can be predicted and turned into profit. The Mystery of Market Movements provides;

• A review of the collective unconscious and its archetypes based on Carl Jung’s theories and empirical case studies that highlights and assesses the influences of the collective unconscious on financial bubbles and zeitgeists
• For the first time being able to objectively measure the impact of archetypal forces on human thoughts and behaviour with a view to provide early warning signals on major turns in the markets. This is done through a step-by-step guide on how to develop a measurement methodology based on an analysis of the language of the unconscious; figurative speech such as metaphors and symbolism, drawn out and deciphered from Big Data sources, allowing for quantification into time series
• The book is supplemented with an online resource that presents continuously updated bespoken archetypal indexes with predictive capabilities to major financial indexes

Investors are often unaware of the real reasons behind their own financial decisions. This book explains why psychological drivers in the collective unconscious dictates not only investment behaviour but also political, cultural and social trends. Understanding these forces allows you to stay ahead of the curve and profit from market tendencies that more traditional methods completely overlook.

Acknowledgments ix

Introduction 1

CHAPTER 1 Psychology: A Primer 7

Some Key Psychological Concepts 9

The Unconscious 13

Conclusion 21

Notes 22

References 24

CHAPTER 2 Archetypes and Symbols 27

Carl Gustav Jung 27

Archetypes: A Background 31

Why Do Archetypes Activate? 40

Symbols: The Tangible Manifestations of Archetypes 45

Conclusion 50

Notes 50

References 52

CHAPTER 3 How Archetypes Influence and Impact Behaviour 55

Characteristics of the Activation of an Archetype 55

Projections and Other Defense Mechanisms 56

The Role of Scapegoats 58

Shadow Projections 58

Zeitgeist 59

Mass Hysteria and Panics 62

Conclusion 65

Notes 65

References 66

CHAPTER 4 Archetypal Influences in the Financial Markets 67

Financial Bubbles 67

Animal Spirits 71

An Archetypal Perspective on the Development of Financial Bubbles 74

Conclusion 77

Notes 77

References 78

CHAPTER 5 Existing Approaches to Capture Sentiments in Financial Markets, and Why They Do Not Work 81

Behavioural Finance 82

Technical Analysis 83

Efficient Market Hypothesis 84

Black Swans 86

Social Mood 87

Emotion Words 89

Conclusion 89

Notes 90

References 91

CHAPTER 6 Developing a Conceptual Measurement Methodology Based on Archetypal Forces, Part I: Building Blocks 93

Linking Symbols to Archetypes 96

Capturing Symbols 98

Conclusion 107

Notes 108

References 109

CHAPTER 7 Developing a Conceptual Measurement Methodology Based on Archetypal Forces, Part II: The Data 111

Data Sources 112

Capture and Cleansing 114

Relativisation of Symbol Words 119

Two Article Examples 120

Conclusion 128

Notes 128

References 129

CHAPTER 8 Developing a Conceptual Measurement Methodology Based on Archetypal Forces, Part III: The Model 131

Signal Theory 133

Correlation Testing 136

Testing the Time Series against Known Cycles 138

Constructing Archetypal Composite Indexes 138

Backtesting and Calibration 141

Conclusion 142

Notes 143

References 143

CHAPTER 9 Examples of Archetypal Influences on the Formation of Financial Bubbles 145

The Dot-Com Bubble 148

The US Property Bubble 155

Conclusion 159

Notes 160

References 161

CHAPTER 10 Conclusion 163

How Archetypes Play Out 164

Areas for Further Research 165

Time Constants 166

Multiple Archetypes 166

Tipping Points 167

Subliminal Stimulation 168

Archetypal Influences in Other Areas 169

Archetypal Influences in Other Cultures and Languages 170

Are the Collective Unconscious and Its Archetypes Constraining Free Will? 171

Influences on Finance 172

About the Author 175

Index 177

NIKLAS HAGEBACK has extensive experience in the financial sector working at tier-one financial institutions and consulting firms, such as Deutsche Bank, KPMG, and Goldman Sachs, holding regional risk management and oversight roles in both Europe and Asia. This included leading the implementation of operational risk and economic capital frameworks and also engaging in the public debate through a number of articles published, public presentations and regulatory lobbying.

He currently resides in Hong Kong where he is running a money management firm as well as managing a portfolio of financial software start-up firms with a special focus on research and product development in the area of behavioural finance.

Underlying the rise and collapse of the housing bubble, the dot.com upsurge and crash, and the worldwide economic climb and breakdown, are irrational impulses–from mania to panic–that play a major role in collective human investment behaviour.

The Mystery of Market Movements attempts to answer the key questions of when and why financial bubbles are likely to form by exploring the collective unconscious and its archetypes. Armed with an understanding of how archetypes drive the financial markets, investors will be able to better identify irrational behaviours and the hidden investment opportunities they create.

As financial expert Niklas Hageback explains, financial markets, with their extensive output and frequent updates of real-time data, provide fertile ground for statistical testing of the archetype hypothesis. By building a record of the appearance of archetypal symbols and analysing the frequency of their appearance versus financial indexes, it is possible to predict price trends over time.

The Mystery of Market Movements includes an empirically verified measurement methodology that is designed to capture the subliminal forces that influence human behaviour and investment decisions, in particular, and clearly demonstrates how archetypes can give rise to financial bubbles.

In clear and understandable terms, Niklas Hageback outlines the archetypal conceptual measurement methodology model and offers insight on the statistical methods used to develop and test archetypal symbol time series. He discusses the model’s foundational building blocks and explores the components that constitute the measurement units. He also reveals the data sources and includes samples of how the symbol selection is conducted.

The Mystery of Market Movements is a practical guide to understanding archetypal influences. The website offers access to continuously updated indexes that will give investors the ability to track changes in archetypal mood patterns and boost their ability to make wise investment decisions.

Discover how human behaviour affects the global marketplace

Throughout history financial bubbles–that are often based on irrational human behaviour–have periodically wrought havoc on the world economic stage. Conventional economic models have failed to predict how erratic behaviour influences the marketplace.

The Mystery of Market Movements unravels the secrets of when and why financial bubbles are likely to form by exploring the influence of the collective unconscious and its archetypes. As financial expert Niklas Hageback explains, archetypes are the unconscious mental images that affect our behaviour and judgement without our being consciously aware of it.

The Mystery of Market Movements contains an introduction to Carl Jung’s view of the collective unconscious and shows how archetypes activate the symbols that can be used to measure human behaviour. The author then explores how archetypes and symbols directly affect the market and outlines the groundbreaking archetypal conceptual measurement methodology model. In accessible terms, Hageback discusses the model’s basic building blocks and explains the various components that comprise the measurement units. He offers information on the data sources and includes a wealth of samples of how the symbol selection is conducted.

With The Mystery of Market Movements and its companion website www.forecastrix.com, you have the information necessary to understand archetypal influences in the marketplace and the tools to leverage that knowledge to ensure strong investment returns.