Short Summary
The 1987 stock market crash, the burst of the tech bubble in 2000, the financial crisis of 2008...and many more crashes in other markets were dubbed Black Swan events because they were considered "unknown unknowns".
Their frequency has increased over the last decade and just because the markets have recovered by now doesn't mean they won't happen again. The next Black Swan has been born already.
The impact of these events particularly on pensions and small investors was such that it became essential to create a tool that will help to avoid a repetition.
Empirical research suggests that information extracted from social media such as Google Trends, Twitter, Facebook, Wikipedia etc. can be used to identify early warning signs of impending developments in financial markets. The same effect has been well documented by numerous academic papers regarding the so called implied volatilities of option prices on exchange traded financial instruments such as stocks, bonds, currencies and commodities.
By combining these two very different but forward looking sources of information the Black Swan Spotter aims to generate early warning signals of pot. market crashes for its users.
This should greatly enhance investors ability to safeguard their investments and meaningfully contribute to a reduction of the painful consequences of financial corrections or crisis.
What We Need & What You Get
The funds will be used to:
- convert identified academic research that offers relevant information
into actuable formulae for applicability in the markets
- translate it into code in order to create the app (bulk of funding)
The result will be an app that is updated on a daily basis to give its users clear and straight forward early warning signals as to the state of the respective markets (stocks, bonds, currencies and commodities). Users will be able to chose from a drop down menu which markets they want to follow.
It will NOT contain any investment advice. All information provided will be based on published academic research and new research will constantly be monitored as to its possible benefits and added if useful.
Initially the app will cover the stock markets with subsequent expansions into interest rate, currency and commodity markets. There will be a customizable version that will allow users to upload any exchange traded instrument that has a liquid option market attached. This version will also allow users to connect to their brokerage accounts.
The Black Swan Spotter will at first be available for Android only with subsequent releases for iPhone, BlackBerry and Linux operating systems.
The Impact
As an experienced money manager I am familiar with the information value embedded in implied volatilities of option prices to manage risk and also with the application of information extracted from social media sources as it becomes increasingly available.
In order to avoid a repetition of what happened in 2008 and the subsequent economic havoc caused it is of utmost importance to offer individual investors this information in a readily available and actuable format in order to help them make informed investment decisions based on the latest available research and better understand their risk.
Two research examples are attached to demonstrate what will be used. It suggests enormous benefits when rigorously applied and thus may contribute to more balanced markets in the future - a benefit for everone.
Other Ways You Can Help
Let people know of this opportunity. Who ever has investments whether in savings, pensions, mortgages or otherwise can only benefit from the additional information provided by this app.
