FOMO — fear of missing out — is the pull to buy because other people seem to be making money. It travels through narratives: simple stories that spread faster than the numbers behind them, which Robert Shiller argued in 2017 can move markets in their own right. Herding is what follows: buying because others are buying.
The timing tends to work against the late arrival. Brad Barber and Terrance Odean found individual investors are net buyers of attention-grabbing stocks — ones in the news, trading heavily or after a big one-day move — because attention decides what they consider buying. A 2011 study found that a jump in Google searches for a stock predicted higher prices over the next two weeks and, on average, a reversal within the year. Momentum — recent winners continuing to outperform for a while — is also well documented, which is part of why a story can look right for longer than it lasts. None of it says what any one share will do. In the app, a holding's news refreshes weekly, not by the minute.
The average pattern in one study of search data. It doesn't say what any single share will do.
SOURCES
- Shiller, R. J. (2017). Narrative economics. American Economic Review, 107(4), 967–1004.
- Barber, B. M. & Odean, T. (2008). All that glitters: the effect of attention and news on the buying behavior of individual and institutional investors. Review of Financial Studies, 21(2), 785–818.
- Da, Z., Engelberg, J. & Gao, P. (2011). In search of attention. Journal of Finance, 66(5), 1461–1499.
- Jegadeesh, N. & Titman, S. (1993). Returns to buying winners and selling losers: implications for stock market efficiency. Journal of Finance, 48(1), 65–91.
Educational content only. It is not personal financial advice.