Brain activity of professional investors signals future stock performance

A major aspiration of investors is to better forecast stock performance. Interestingly, emerging neuroforecasting research suggests that brain activity associated with anticipatory reward relates to market behavior and population-wide preferences, including stock price dynamics. In this study we extend these findings to professional investors processing comprehensive real-world information on stock investment options while making predictions of long-term stock performance. Using functional magnetic resonance imaging (fMRI), we sampled investors neural responses to investment cases and assessed whether these responses relate to future performance on the stock market. We find that our sample of investors could not successfully predict future market performance of the investment cases, confirming that stated preferences do not predict the market. Stock metrics of the investment cases were not predictive of future stock performance either. However, as investors processed case information, nucleus accumbens (NAcc) activity was higher for investment cases that ended up overperforming in the market. These findings remained robust, even when controlling for stock metrics and investors predictions made in the scanner. Cross-validated prediction analysis indicated that NAcc activity could significantly predict future stock performance out-of-sample above chance. Our findings resonate with recent neuroforecasting studies and suggest that brain activity of professional investors may help in forecasting future stock performance. Significance StatementThe investors dream of forecasting the stock market is typically considered to be just that: An unrealistic aspiration. However, we find that forecasting stock performance may in fact not be completely unattainable. Results of our neuroimaging experiment reveal that professional investors fail to accurately predict long-term stock performance. However, while processing complex information pertaining to investment cases, brain activity in a region associated with reward anticipation was increased for stocks that would end up overperforming in the future market. Remarkably, this effect held after controlling for the stock information presented in the investment cases. Our findings add to recent work in neuroforecasting, demonstrating that market behavior can be forecasted by brain activity of a small sample, here of professional investors.