Abstract

The Bond Market since 1978 - A chronicle with psychological aspects

The theses on psychologicaly determined entrepreneurial decisions in the free market economy, which W. A. Jöhr set up over 20 years ago, still have topical significance and are definitely suitable for characterizing also purchase and sales decisions on the domestic bond market. True, psychological causes such as, say, exaggerated emotions and moods, origination of notions, motive adoption and endeavours to steal a march on others, are not the only determinants of the bond market. In past years, however, they have gained considerable importance and for many interest-rate forecasts in which the fundamental data alone were in the foreground of the deliberations they were sometimes no insignificant source of errors. Precisely the trend on the domestic bond market since 1978 is a classical example of this. For example, there were unstable situations with self-sustaining upswings of yields, e.g. on the announcement of the “European Monetary System” and new figures on puflic borrowing needs, or on the announcement of the socalled “Carter notes”, to mention just a few phases. But such phases were often followed by downward trends. Inter alia, the cause of these exaggerations evidently lies also in conformable behaviour of the parties in the market, which is attributable to the fact that, prior to making decisions to buy or sell, they inquire or consider how the other market participants are behaving, so thatin the event of wrong decisions they can later point out that other market participants were no more Successful. For broad spheres of economic life, some groundwork has been done for scientific behaviour research. If the psychological factors governing the bond market can be elucidated better on a scientific basis, the short-term forecasts can also be improved.