What Are Non-Economic Factors?

What are non-economic factors? To what extent do these factors affect the economy? How are stocks affected by these factors?

Economic and financial factors do not always affect the status and progress of the shares. Apart from these, there are some external factors that affect the shares. We have discussed some of these factors in our article. Although we know that stock market actors make decisions based on basic indicators such as the general state of the company, the sector and the economy, there are studies that show that the daily situation of investors also affects their stock performance. Although most of the research on the subject of behavioral finance does not seem to be applicable in all situations and all the time, it is possible to make some generally observable inferences. The non-economic factors that may affect the direction of the shares are as follows:

Weather forecast

Does the sunny weather on Wall Street or the rain in Istanbul really affect the direction of the stocks? Considering that the weather affects all of our daily lives, the possibility that it can affect the behavior of traders and investors is not unreasonable. On the other hand, although a lot of research has been done on the subject, a consensus on the answer has not yet been obtained. Even among research on the weather's impact on stocks, there are differing views on how it does. For example, two different studies on Turkish stocks on the subject reach two different results. In a study conducted on stock performances between 1987-2002, when rainy, cloudy and snowy days were examined whether they had an effect on investors, the result was determined that there was only a connection between profitable days and stock performance. According to another academic study conducted between 2009 and 2011, it was concluded that investors were affected not by the sun, but by the cloudiness and the temperature of the air.

Tweets

In recent years, many studies have been conducted showing that there is a strong link between the social media posts of investors and analysts and the direction of the stock market. According to an article published this year by the European Central Bank (ECB), the mood of Twitter shares and Google searches influences the investor outlook, and naturally the stock markets. While the optimistic (bullish) or pessimistic (bearish) moods of the investors reflected on Twitter and Google are a good indicator for stock returns, especially the tweets provided provide strong data for stock predictions. According to a study conducted for Turkey under the consultancy of Associate Professor Orhan Erdem, we can say that there is a link between tweets and the direction of stocks in Turkey, but this link is much weaker than in other countries, especially in the USA.

Media

As can be expected, the amount of media coverage of a company makes the reactions to the company's shares much larger. Traditional media tools, which play a major role in the formation of people's perceptions, also affect the approach of investors to stocks. However, a study conducted at the University of Gothenburg in 2006 proved that media attention was not so influential on initial valuations of stocks in IPOs.

Social Events

Although the effects of developments such as terrorism, natural disasters or war on the stock market are mostly through positive or negative effects on the economy or certain sectors, there are studies that can change the direction of stocks by negatively affecting the mood of investors. But it is considered even more difficult to measure than other factors.