Spendthrift elite signals equity slide, behavioral experts warn

Tue Jun 18, 2013 4:43am EDT
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By Atul Prakash

LONDON (Reuters) - Record prices at art auctions in recent weeks and oversubscribed holidays by private jet are among signals that a stock market slump is approaching, if followers of behavioral finance are to be believed.

They insist social mood governs human action, including investment on stock markets, and their theories are gaining ground as tools for financial analysis.

To gauge the mood and the likely impact on markets, behavioral analysts look at traditional measures such as investment polls and options but also at social media, including Twitter and Facebook, and even at developments in art and sport.

The theory goes that people make bad decisions at moments of extreme fear or optimism and that studying their behavior could provide clues to where equities are headed.

Now may be just such a moment.

"Markets either have topped or will soon top, based on the behaviors I see outside of the markets, especially in art, automobiles and residential real estate," Peter Atwater, president and chief executive of Financial Insyghts, a firm based in Mendenhall, Pennsylvania, that advises on how social mood affects decision making, said.

Atwater cited an Aston Martin car fetching a record $4.85 million at auction in May, a New York sale of Christie's Post-War and Contemporary Art setting 37 records last month, and holiday firm Abercrombie & Kent adding a second departure to its 19-day tour of Africa by private jet after the first sold out.

Behavioral analysts term the 140 percent rise in major indexes since 2009 the "rich man's rally", and say the behavior of the uber-rich reflects peak-of-the-market sentiment.   Continued...

A pair of high heel shoes is placed on shore in front of a yacht during the summer contingent of the Millionaire Fair of luxury goods in Moscow, July 4, 2010. REUTERS/Sergei Karpukhin