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Anxiety in a volatile market

2018 was the worst year the U.S. stock market has seen since 2008 and worries about the economy are continuing in 2022. How do you deal with anxiety in a volatile market? Psychologist Frank Murtha, PhD, co-founder of MarketPsych, a consulting firm to the financial industry, explains how to calm stock market fears and ways to build a savvy investor identity.

About the expert: Frank Murtha, PhD

Frank Murtha, PhD, is co-founder of MarketPsych, where he specializes in helping financial professionals apply behavioral finance to their work. His path to the financial services industry is a non-traditional one. Murtha holds a doctorate in counseling psychology from The University at Buffalo. While obtaining his PhD, he carved out a niche as an expert on the psychology of gambling and his dissertation explored the effect of cognitive errors in gambling behavior. Murtha is interviewed frequently by news outlets and has been featured numerous times on National Public Radio, Nightly Business Report, CNBC and World Business Review. His book, MarketPsych: How to Overcome Fear and Build Your Investor Identity , was selected by Kiplinger’s Personal Finance as one of “Three Best Financial Books of 2010″.

 

 

2018 was the worst year the U.S. stock market has seen since 2008, back when we were in the throes of the Great Recession. If the stock market is giving you anxiety and making you want to jump ship, you’ll want to hear the advice of the guest on this episode.

Dr. Frank Murtha is a psychologist by training and co-founder of MarketPsych, a consulting firm to the financial industry, where he uses applied investing psychology to the financial services industry. Citation: © 2022 American Psychological Association

What Is Market Psychology?

Market psychology refers to the prevailing behaviors and aggregate sentiment of market traders at any point in time. The term is often used by the financial media news publications and analysts to explain market movements that may not be explained by other metrics, such as fundamentals.

 

Market psychology describes the overall behavior of markets based on emotional and cognitive factors and should not be confused with trader psychology, which refers to the same factors but that affect just an individual trader.

  • Market psychology is the consensus sentiment of the markets as a whole based on the individual market participants.
  • Greed, fear, anxiety, panic, FOMO, herd mentality, social media, financial news media and excitement can all contribute to market psychology.
  • Conventional financial theory assumes that prices were always based on rational considerations and failed to account for the potentially irrational impact of market psychology. 

Market psychology is considered a powerful force and may or may not be justified by any particular technicals, fundamentals or events. For instance, if investors suddenly lose confidence in the overall health of the American economy and decide to pull back on buying stocks, the indexes that track the overall market prices will fall. The prices of individual stocks will fall along with them, regardless of the financial performance of the companies and or valuations behind those securities.

 

Greed, fear, expectations, and euphoria are all factors that contribute to the markets’ overall psychology. The ability of these states of mind to trigger periodic “risk-on” and risk-off” cycles in financial markets is well documented. 

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Disclaimer: This content is only intended for informational purposes. Before making any investment, you should always do your own research and analysis.

 
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