Behavioural Economics Approach: Using Investors Sentiment Indicator for Financial Markets Forecasting

Abstract

Abstract. This research focus on prediction of anomalous situations in financial markets. It investigates if the indicator of investors' sentiment can be used to eliminate the factor of irrational behaviour and increase the profits. The overview of existing models for financial crisis forecasting is presented in this paper. Financial and sentiment-based indicators are overviewed and the general classification of both kind of indicators is suggested. The methodology of using investors' sentiment indicator together with different strategies are presented. The simulation of investment to different financial instruments was used in order to test the proposed method. The results show that sentiment based indicator can successfully prevent the investments from losses.