Does Human Behavior Move the Markets?

Goldman Sachs Exchanges

Julia McGonagle

Business

4.4 • 1K Ratings

🗓️ 26 June 2019

⏱️ 18 minutes

🔗️ Recording | iTunes | RSS

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Summary

Although financial markets tend to be explained largely in quantitative terms, human behavior still plays a major role in driving price action, says Sheba Jafari, head of technical analysis for Goldman Sachs’ Securities Division. Jafari, who looks at historical patterns to predict movements in markets, explains: “In my opinion, the mere fact that we have the existence of [asset] bubbles indicates that markets are still run by emotions -- fear, greed and hope.” Also in the episode, Jafari discusses the impact of AI and machine learning on trading decisions and her own unlikely path from film studies to finance.

Transcript

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0:00.0	This is Exchanges of Goldman Sachs, where we discuss developments currently shaping markets, industries in the global economy.
0:14.3	I'm Jake Stewart, global head of corporate communications here at the firm.
0:17.8	The question of today's episode is, does human behavior move the markets?
0:23.0	To answer that question, we're joined by Sheba Jafari, head of the global macro technical
0:27.2	analysis team in our security division.
0:29.4	Sheba, welcome to the program.
0:31.0	Thank you so much for having me.
0:32.4	So Sheba, give us a little context on how markets would behave if they were completely
0:36.6	rational and immediately and efficiently priced in every event.
0:41.1	Well for starters I would be out of a job. So the question really just
0:45.4	calls upon your textbook old school theory of efficient market hypothesis and
0:50.1	in an efficient market hypothesis the claim is that all investors make informed rational decisions.
0:56.0	You and I would weigh out events and data points identically and immediately adjust our portfolios accordingly.
1:02.0	Market movements are entirely random and unpredictable.
1:05.0	Prices fully reflect all available information
1:08.0	and there's really no arbitrage your profits to be made.
1:11.0	And in this perfect world, the economy distributes all resources in an
1:14.5	optimal manner. So there's no alternative allocation which can make one
1:17.9	person better off without making another person worse off. You've studied this
1:21.6	quite a bit. A little bit.
1:23.0	What does, yeah.
1:25.0	What does the empirical Evans suggest about the efficient market hypothesis?
	...

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