Market digest Friday, December 30, 2022

Fear & Greed Index

The fear and Greed index created by momentum, leading and lagging indicators of the market.

FEAR & GREED INDEX FAQS

What is the CNN Business Fear & Greed Index?

The Fear & Greed Index is a way to gauge stock market movements and whether stocks are fairly priced. The theory is based on the logic that excessive fear tends to drive down share prices, and too much greed tends to have the opposite effect.

How is Fear & Greed Calculated?

The Fear & Greed Index is a compilation of seven different indicators that measure some aspect of stock market behavior. They are market momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility, and safe haven demand. The index tracks how much these individual indicators deviate from their averages compared to how much they normally diverge. The index gives each indicator equal weighting in calculating a score from 0 to 100, with 100 representing maximum greediness and 0 signaling maximum fear.

How often is the Fear & Greed Index calculated?

Every component and the Index are calculated as soon as new data becomes available.

How to use Fear & Greed Index?

The Fear & Greed Index is used to gauge the mood of the market. Many investors are emotional and reactionary, and fear and greed sentiment indicators can alert investors to their own emotions and biases that can influence their decisions. When combined with fundamentals and other analytical tools, the Index can be a helpful way to assess market sentiment.

20-12-22 WSJ market coverage

The broader meaning of Fintech and what includes.

The term "FinTech", which is the short form of the phrase financial technology, involves companies or representatives of companies that combine financial services with modern, innovative technologies. As a rule of the thumb, new market participants offer Internet-based and application-oriented products. FinTechs generally aim to attract customers with products and services that are more user-friendly, efficient, transparent and automated than those currently available. 

In addition to offering products and services to the banking sector, there are also FinTechs that distribute insurance and other financial instruments or provide third-party services. In a generalised sense, the term "FinTech" includes companies that simply provide technology (such as software solutions) to financial institutions for the provision of services.

It is also not possible to define the term "Fintech" based on legislation or legal documents. FinTech companies are subject to different types of legal and regulatory obligations due to their different business models and the highly diverse products and services they offer

Companies in the FinTech industry can be divided into four broad segments according to their distinct business models. By analogy with the traditional value-added segments of a universal bank, FinTechs can be distinguished on the basis of: 

1.Involvement in finance

2. Involvement in asset management

3. Payment management

4. Other FinTechs (set of companies performing other functions).

Segments of the FinTech industry

The financial sector includes a segment of FinTech that makes financing available for both individuals and businesses. This segment can be further divided into FinTechs whose operations are based on the participation of a large number of contributors by providing the financial resources to achieve a common goal (crowdfunding) and those that offer debt buyback services or credit without the participation of the crowd (credit & factoring services).

The asset management sector includes FinTechs offering advice, sale and management of assets, as well as aggregated personal wealth (personal investment) indexes. This section is also further subdivided into subsections: Social trading where it is a form of investing in which investors (or "followers") can observe, discuss and copy the investment strategies or portfolios of other members of a social network (Liu, 2014). Robo-advice refers to portfolio management systems that provide algorithm-based investment advice and highly automated investment decisions (ESA, 2015). 

Personal financial management (PFM), including FinTech companies offering private financial planning, in particular for the management and presentation of financial data using software or app-based services. Finally, it also includes traditional banking products, such as a cash account with certain IT functions. By making effective use of technologies, these FinTechs can offer traditional banking products more economically and quickly, as well as more user-friendly functionalities.

The payments sector is a generic term referring to FinTechs whose applications and services involve national and international payment transactions. Included under this category is the blockchain and cryptocurrency subsection, which includes FinTechs (e.g. Binance) that offer virtual currencies (cryptocurrency) as an alternative to standard fiat money. As with legal tender, it is possible to save, use and exchange cryptocurrencies with banks being as intermediaries (BaFin, 2016). As with most other digital payment systems, a blockchain is used to secure electronic transactions. With this technology, all transactions are registered and stored on various servers. This makes it very difficult to falsify information (Grinberg, 2011). Even companies that do not offer cryptocurrencies themselves, but exclusively blockchain technology for financial services, are included in the category of blockchain and cryptocurrencies.

The Other FinTechs segment describes FinTech firms that cannot be classified by the other three traditional banking functions, namely finance, asset management and payment transactions. FinTechs that offer insurance or facilitate the acquisition of insurance are included in the insurance subsection. These FinTechs are often also referred to as InsurTechs. Among other things, they offer peer-to-peer insurance, in which a group of insured persons join together and assume collective liability in the event of losses. If no loss occurs within the group, there is partial reimbursement of the premium (Wolff-Marting, 2014). In addition, FinTechs of search engines and comparison sites, which allow internet search, comparison of financial products or financial services and FinTechs providing technical solutions for financial service providers are included in the Technology, IT and Infrastructure subsection.

References:

BaFin, 2016. Virtuelle Wahrungen/Virtual currency (VC). [Online] 

Available at: https://www.bafin.de/DE/Aufsicht/FinTech/VirtualCurrency/virtual_currency_node. Html

ESA, 2015. Joint committee discussion paper on automation in financial advice. European Supervisory Authorities. [Online] 

Available at: https://www.eba.europa.eu/documents/ 10180/1299866/JC+2015+080+Discussion+Paper+on+automation+in+financial+advice.pdf

Grinberg, 2011. Bitcoin: An innovative alternative digital currency. Hastings Science and Technology Law Journal, Volume 4, pp. 159-208.

Liu, Y.-Y. N. J. C. O. T. M. M. &. A. Y., 2014. Prospect theory for online financial trading. [Online].

Wolff-Marting, 2014. Peer-to-Peer- und Friend-to-Friend-Versicherungsmodelle und die Herausforderungen aus IT-Sicht. [Online] 

Available at: http://blog. versicherungsforen.net/2014/02/pee

19-12-22 WSJ market coverage