Market metaphors can lead investors astray

Excitable coverage of financial market movements not a recent development

Would you be nervous about your investments if you read that Wall Street “looked set for another day of market carnage”? On the other hand, if you were an Apple shareholder, would you be excited by a headline such as “Apple’s stock jumps after T-Mobile sees record pre-orders” for the iPhone 7?

The aforementioned headlines, both of which appeared on the Dow Jones-owned MarketWatch website last week, were a trifle misleading. According to the initial article, pre-market prices indicated US indices were set to decline by 0.6 per cent, which hardly qualifies as “carnage”.

Similarly, the Apple article stated that Apple shares “surged 1.1 per cent”; words like “jumps” and “surged” might induce an adrenaline rush among Apple shareholders, but a 1.1 per cent share price rise is hardly a cause for major celebration.

Excitable coverage of financial market movements is not a recent development. As far back as 1995, a study analysing media coverage of the Hong Kong stock market noted that reporters referred to how share prices “dipped, plummeted, sagged, plunged, dived, dropped, slumped and tumbled, or jumped, surged, sprinted, climbed, gained, leaped, rose and vaulted from their previous value”.


Market metaphors

Such words pepper everyday market coverage. And the language used by the media can shape investors' behaviour, according to Prof Michael Morris from Columbia Business School, co-author of Metaphors and the Market, a 2007 study that examined the use of metaphors in market commentary.

Metaphors used tend to fall into two camps: agent metaphors and object metaphors.

Agent metaphors, said Morris, tend to portray the market as if it is a living thing with clear, deliberate intentions, and are more commonly used on bullish days. Examples include “the Nasdaq climbed higher”, “the Dow fought its way upward”, and “the S&P dove like a hawk”.

In contrast, object metaphors tend to be used on down days, portraying indices as inanimate objects that are “buffeted by external physical forces”. Examples include “the Nasdaq dropped off a cliff” or “the Dow fell through a resistance level”.

Agent metaphors that personify the market as a determined, living force usually imply that the current trend will continue. Saying that the Nasdaq “climbed higher” implies “an enduring internal goal or disposition”. In contrast, object metaphors (“The Nasdaq was pushed higher”) do not reflect “an internal force that will manifest itself again tomorrow”.

This should not mistaken for linguistic pedantry – such language can shape investor attitudes. In experiments conducted by Morris, would-be investors looking at a rising share price chart were much more likely to predict the stock would continue gaining if they were told that it “climbed” in price as opposed to “increased” by the same amount. The differential was even greater if investors were told that a stock “dove” in price as opposed to “decreased” by the same amount.


If investors can be so easily swayed by language, it suggests that following financial news reports can lead to bad investing decisions. In 1987, psychologist Paul Andreassen decided to test that proposition by conducting experiments with MIT business students. Participants were divided into two groups; each group selected a portfolio of stocks and were free to sell these stocks at any time.

One group was allowed to see the changes in stock prices, but were given no explanation as to why the stock was moving. The second group saw the stock price movements and were also given frequent news updates that attempted to explain the price changes.

The end result? The returns of the group that received no news updates were twice that of the group that received news updates.

Investors commonly assume that news causes stocks to move, but often it’s the other way around – price makes news, with explanations conjured up for stock movements that may have arisen for any number of reasons.

Stock prices change because of supply and demand, and seasoned investors know that most day-to-day action is merely market noise. However, Andreassen found that share price increases were explained with “good” news; reports indicated declines were caused by “bad” news, with journalists tending to overplay the importance of the stories they reported on. The participants in his study bought into this narrative, overvaluing the value of the news information that was supposedly driving stock price changes, resulting in overtrading and underperformance.


Clearly, investors should be cautious regarding the media’s causal explanations of share price changes. However, investors also need to be aware that their investing decisions can be steered by news reports that make no attempt to explain price changes. Simply describing them agentically – that is, using seemingly innocuous words like “soared”, “leaped”, “climbed” and “jumped” – is enough to lead investors astray.

Morris's Metaphors and the Market paper quotes Sartre, who famously described words as "loaded pistols". "Dead metaphors may be metaphors the audience lives by, or invests by," cautions Morris. Reporters may use them as "stylistic ornaments, but their audiences can still get hurt".

The solution, suggests Jason Zweig in his book The Devil's Financial Dictionary, is to ignore verbs that describe how markets are acting and instead focus on an asset's percentage move. "Chances are," says Zweig, "a leaping or surging or racing or plunging or collapsing or diving market has barely moved by even 1 per cent."

How high can a dead cat bounce?

Finance experts and psychologists are not the only scholars to note the idiosyncratic language used in stock market reports. In 1995, English lecturer Geoff Smith from the University of Hong Kong penned the wonderfully titled How High can a Dead Cat Bounce?, a paper which collected a host of colourful metaphors used in the Hong Kong financial media over a five-month period.

Animal comparisons are common, noted Smith, as are “extended metaphors relying on the behavioural characteristics of the animals”, examples including: “strong bears came out of the woods determined to drag the market down”; “the bears had their claws firmly dug in and were not letting go”; “stampeding bears send index diving”; and “10,000-mark red cape as bulls paw the ground”.

Besides bulls and bears, “one or two other species occasionally make appearances”. These include cats and mice (“dead cat bounce”; “timid mice would come out to buy in the hopes of a rebound only to be pounced on by big cats all too keen to sell at these levels”), dogs (“The stock remained a dog”) and even gazelles (investors ran “like a herd of startled gazelles”).

Sometimes, a whole menagerie is let loose (“With the rise from 7,000 to 8,600, optimists saw the makings of a baby bull, but naysayers warned it could be a bum steer ... after last year’s grizzly bear market”).

Human characteristics are frequently attributed to markets (“The market was very nervous. It lacked direction. In the afternoon the index nosedived with a vengeance”; “The market was suffering vertigo”).

“Calls to battle” and conflict metaphors are similarly common. Sellers and bears “guarded the barrier”, a stock “retreats after all-out charge”, the “groggy dollar slips”.

Gravitational metaphors and similes are used to capture the markets ups and downs. The index was “losing its footing”, “fell off the cliff”, “dropped like a brick”, “continued its tailspin”, “took a rollercoaster ride and ended up in the subway”.

Colourful language can enliven copy, but Smith pointed out readers should not trust the retrospective nature of such reports. “Tentative predictions of what will happen in the future contrast sharply with the confident certainty of attributing explanations to events which have already happened”, he noted. “”Rarely do commentators say ‘These events are totally unpredictable; I haven’t the slightest idea what caused them to occur.’ ”