Financial scientist Teodoro Cocca expects a correction in the financial markets soon.
Analyzing human behavior when investing money – that's what behavioral finance wants. And that is a research focus of the Swiss economist Teodoro Cocca, professor at the Johannes Kepler University Linz. For the current situation, he comes to the conclusion: Despite Corona, investors are too optimistic – and have been for months. Cocca suspects a trend reversal in the near future.
“Behavioral finance is based on the assumption that investors behave irrationally,” explains Cocca. The market is not a rational one, but also driven by moods. Cocca and his team analyze a number of indicators on the financial markets in order to draw conclusions about these sentiments and to formulate buy and sell recommendations for investors.
An example of such indicators are the prices on the derivatives market, which provide information about how high the hedging needs of investors are. “If investors have fears, they have a high need for protection,” says Cocca. The current carelessness is remarkably great. “In recent years, there has rarely been such a low need for protection as it is now,” states Cocca. “The carelessness obviously coincides with the vaccine announcement a few days ago. Associated with this, we see a very strong rise in share prices and a real euphoria. “
Scientists currently have enough reason to assume that the market will soon develop differently. Not much has changed in terms of the news situation, according to Cocca. A vaccine has been announced – that summer 2021 would be relatively normal, but it had been known for a long time. And: “What does not seem to be of great concern to the stock markets is that we still have a winter ahead of us and that this could still have effects on the economic cycle.”
At the end of June, Cocca and his team had already formulated a sales recommendation based on the indicators examined – the situation has been remarkably optimistic since then.
Because of the many influencing factors to which the financial markets are subject, it can take several months until the forecast trend reversal occurs. That shows the current situation. “We expected a correction for October,” says the expert. “Then the market began to reflect the second wave and the concerns associated with it.” However, the vaccine announcement for its part contributed to an upward correction of the market.
Commitment to Kepler funds
In practice, Cocca uses its knowledge in this area for the Raiffeisenlandesbank Oberösterreich. Cocca has been working with their daughter, the Kepler Fonds KAG, for ten years. The cooperation with Cocca is a successful one for the Kepler-Fonds KAG – numerous awards would prove that. Kepler currently manages around 17 billion euros in total.
