The butterfly effect, a concept originating from chaos theory, implies that small changes can lead to significant consequences. This phenomenon, first discussed by Edward Lorenz in 1942, has profound implications for financial markets.
The phrase suggests that the flap of a butterfly’s wings in Japan could not create a small change in the atmosphere that might eventually lead to a tornado in Texas
What meaning has the frase“the butterfly effect”?
The phrase was first mentioned during a scientific meeting in 1942. Scientist Edward Lorenz gave a talk on his work regarding economical prediction models.
Who and when was first coined the phrase “the butterfly effect”
Origin and Meaning of Butterfly Effect
Improvements in technology and wider access to the Internet has decreased the degree to which international markets influence each other
How it can lead to more episodes
of extreme market volatility
Why it is become more
important in nowadays ?
globalization stop to increase and capital markets connect
GLOBALIZATION AND THE BUTTERFLY EFFECT
Application of Chaos Theory to Markets
Explanation of volatile bear markets
The markets can suddenly shift due to outside factors, which causes investors to pay attention only to positive news. Initial selling leads to more selling as market participants liquidate their positions. The negative feedback loop tends to accelerate quickly, often resulting in a market full of undervalued stocks
how financial markets operate
Markets tend to grow bubbles that eventually pop with drastic consequences. Financial bubbles often grow because of negative feedback
