Markets are supposed to run on fundamentals. In reality they often run on fashion and on FOMO, according to a recent study.
The study introduces a Global Fear of Missing Out (FOMO) index, built from Google searches for terms such as “buy stock”, “missed out”, “get rich quick” and “Bitcoin price”.
Since 2004 high readings on this index have reliably predicted lower returns, weaker risk-adjusted performance and – oddly – less volatility. The explanation? When investors all rush for the same trade, prices drift from fair value, but everyone queues in the same place, smoothing out wild swings.
However, the study’s twist is political: FOMO bites harder in democracies.
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Open societies, with faster news cycles and more vocal investors, spread narratives quickly. That makes markets in democracies more responsive to sentiment, for good or ill.
Elevated FOMO has a stronger impact on returns there, and its dampening effect on volatility is more pronounced.
The research, which used the Economist Intelligence Unit’s democracy scores to trace the link, suggests democracies don’t just spread information more freely. They also spread bad ideas more efficiently, particularly when money is involved.
