In this article, you will read about the media’s role in market transparency and why it matters to traders and investors. The main points discussed are:
- what transparency means in the financial markets,
- how an asset’s financial history counts in research and analysis,
- the differences in transparency between mature and emerging markets.
You might be surprised by the title of this blog, perhaps it seems disconnected from the day-to-day business of trading and investing. This could be because the role of the media is taken so much for granted it goes largely unnoticed.
The news media is one of the strongest drivers of market dynamics and plays a weighty role in shaping and reporting financial changes in a plain and simple way for the layman to grasp their essential meanings.
Without news reports about economic and asset developments, it would be more difficult for traders, investors and even consumers to understand the reasons behind price changes. From this point of view, the media has expanded the reach of the financial markets to millions more interested people from a formerly small group of inside experts.
During the earnings season in the stock markets, the media broadcasts extensive coverage of the listed companies’ financial results. This builds a documented record that investors can consider when making their decisions. It also goes a long way in holding companies accountable to shareholders and laying down expectations of performance.
When governments announce their quarterly economic growth results and projections and the many other updates in the economy, these too are covered by the press. Whether it’s good news or bad news, the facts and the reactions in the markets go on the media’s record, adding another layer of transparency. In the digital age, these reports are searchable and easily accessible.
Transparency in the financial sector
In the currency, commodity and stock markets, transparency means a record of price changes and market reactions that often go back for decades and offer a source of information for research and analysis. This research is applied in academia as well as in daily trading and investing analysis and decision making.
Financial writers refer to these records to write stories about the economy, currency and stock markets. The articles can define historic moments in the economy and put the various fluctuations in the markets into perspective.
How does an asset’s historical record count in analysis?
Year upon year, price data is fed into market visualization software which represents the changes in charts using patterns, lines, candlesticks and waves. The archival record is used to support analysis of the different market drivers. As a beginner, you will soon notice the word ‘drivers’ in columns released by financial analysts and reported in the media. It means a driving force behind an asset’s price change or an economic development.
In terms of cause and effect, the chronicled price and economic records are effects. The media, analysts, traders and investors spend a lot of their time figuring out the causes. There are few things better than a statistical base when harnessed as a starting point for analysis.
Transparency versus non-transparency
The facts and figures may have painful or beneficial consequences but overall, developed markets progressed further after realizing that hiding the facts doesn’t change their eventual impact on investor sentiment and confidence. There are now so many benchmarks and indicators published in advanced economies it would be difficult to name every single one of them.
This is not the case with many emerging markets, where the information isn’t easily available, or it’s presented in a difficult-to-understand way using obscure terms and jargon. In other cases, the emerging market economy isn’t connected to the wider global economy or keeps some parts of the economy isolated. For this reason, emerging market currencies are usually more volatile than mature market currencies.
Whatever the reason, the level of transparency can affect the level of foreign investment and the interest in trading emerging market currencies and equities. Countries which encourage the media and allow it to flourish tend to have more transparent markets, which goes a long way towards reassuring investors and improving investment ratings.
Having said that, every newcomer to trading and investing should make the effort to educate themselves and refer to media reporting as just one source of information. It’s equally important to learn the basics of technical and fundamental analysis for yourself in order to make independent decisions.
In summary, when financial information is available in the clear and concise format preferred by the media, it plays a significant role in promoting transparency, comprehension by the layman, and encouraging confidence in the markets.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
