Value at looking back: Towards an empirical validation of the role of reflexivity in econo-historic backtesting: Economic market prediction corrections correlate with future market performance

Abstract

The following article innovatively paints a novel picture of the mass psychological underpinnings of business cycles based on information flows in order to recommend how certain communication strategies could counterweight and alleviate information failing market performance expectations that could potentially build disastrous financial market mass movements of booms and busts. An introduction to the history of economic cycles will lead to George Soros’ Theory of Reflexivity in order to draw inferences for the analysis of the role of information in creating economic booms and busts in the age of globalization. Empirically, based on a central European central bank’s GNP projections and backtesting corrections, a pattern of central bank corrections communication and economic market performance will be unraveled for the first time to outline that central bank market prediction corrections are positively correlated with near future market performances and negatively correlated with distant future market performances. The collective reality of prices and the irrationality of the crowds perturbating markets will be discussed. Business cycles are argued to obey some kind of natural complexity, as for being influenced by econo-historic communication trends. Recommendations how to create more stable economic systems by avoiding emergent risks in communicating market prospects more cautiously will be given in the discussion followed by a prospective future research outlook and conclusion.