Sensemaking and Storytelling in Financial Markets: Evidence from Istanbul

I defended my PhD thesis on 19 April. The title of my thesis is “Sense-making and Storytelling in Financial Markets: the case of the Istanbul Stock Exchange”. As it can be inferred from the title, the study is about how market actors make sense of data/information flows in digitized and remote access financial markets and what role storytelling might have in this cognitive activity. What I refer to by story/storytelling is the cognitive process in which we establish cause-effect relationships between events and actions. According to the sense-making literature, this is the most commonly used mode of knowledge and explanation among human beings and it is informed by temporality and causality. That is to say, events and actions are put in a sequence according to the perceived cause-effect relationships. The other mode of knowledge and explanation is usually described as categorical knowledge. This is a more deductive method in which the existing scientific or technical knowledge is evoked to demonstrate events and actions as manifestations of these “facts”. Temporality therefore becomes a non-factor in categorical explanations. Of course, it is recognized in the literature that both modes of knowledge and explanation can be used together but what matters here is storytelling relies on putting observed/known events and actions in a non-random temporal order according to a perceived cause-effect relationship among them.

What is significant about digitized financial markets or what Karin Knorr-Cetina and Alex Preda call 'scopic market systems' is that all the data/information from different parts of the world is represented on computer screens in a flow mode. That is to say, data/information (including price) is presented in a sequential manner. Moreover, there are multiple flows that happen contemporaneously. It is therefore easier for market actors to make connections among these multiple streams. Although market actors also rely on categorical knowledge in their sense-making activity (and use risk and valuation models accordingly), it is storytelling that can be expected to be the most dominant way of reducing uncertainty about the past, present and future in the face of multiple flows. This premise might actually sound antithetical to the mainstream finance’s assumption that prices include all available data/information (or market actors actually know what happened in the past). The main reason for this is that the ever present dazzling stream of data/information on the screens is not self-explanatory. That is to say, the screens don’t talk back to market actors and tell them what has happened and what will happen! Such a higher datum is only achieved by market actors’ interpretative or calculative efforts with a view to incorporating price and other  data into their investment decisions.

While the conceptual framework for the role of narratives in sense-making in digital financial markets looks like this, my thesis empirically answers the following questions: do market actors ever resort to storytelling in their sense-making activity? If so, would there be different types of stories in terms of their content and plot structures? If there are, where do these differences come from? I tried to answer these questions with a field work in the ISE in 2008/9. I accessed four intermediary organisations plus an asset management company. My full day observations were around 75 days and I collected over 1200 sense-making stories. These field sites generated around 8% of the annual trading volume in the ISE in 2008/9. They represented different types of investors such as domestic retail, foreign institutional and domestic institutional investors.

Leaving aside the number of stories collected over the observation period, the field observations showed that storytelling was the main mode of making sense of the flows rather than a calculative mode that generated quantified predictions. However, the collected stories showed variance in regards to their content and plot structures in accordance with market actors’ individual and organisational identities. To give an example, among the three domestic sales teams that I observed and where domestic retail investors were served, more than 40 % of the stories fixed an event or news (that were to) happen(ed) abroad as the cause of what was (to be) observed in the ISE. In one of these field sites, this ratio went up to 54 %. This was mainly because of their clients’ preference for trading in ISE futures contracts in line with what was happening in the leading economies and global futures markets. On the other hand, in two observation sites where institutional investors from Europe and North America were served, this correlation/cause-effect logic between world markets and the ISE went below 20 %. More interestingly, the institutional sales teams that served foreign institutional investors usually kept this type of "market abroad" stories to themselves to coordinate trading activity in Istanbul whereas the domestic sales teams told most of the "market abroad" stories to their clients with a view to encouraging them to trade. Although these stories used the same logic of cause-effect or correlation when there was no news event abroad, their frequency and mode of delivery demonstrated that organisational identities/resources affected the cognitive scheme market actors adopted.

This was not surprising for the following reason. As a social resource for intermediaries, investors in the ISE showed distinctions in their investment activities. For instance domestic retail investors on average invested for several week periods and generated bulk of the trading volume in the ISE whereas foreign institutional investors on average held their portfolios unchanged for a few  months and traded infrequently. These dispositions of investment therefore led to differences in narratives as sense-making outcomes with regard to their frequency, content, and mode of delivery.

Another significant example of different dispositions among investor types and their manifestation in story outcomes comes from the domestic retail investor scene. In addition to the three field sites of domestic retail activity, I observed a fourth site in which retail investors were more interested in thinly traded and/or guided shares thanks to high net worth/high frequency trading retail actors, a.k.a. “domestic speculators”. This fourth site was significantly different from the three domestic sales sites where I had the chance to observe a representative sample of the 100,000 or so core domestic retail investors who traded in relatively liquid and large-capitalisation shares. These three sites had hardly generated any stories about “domestic speculators” or guided moves in shares. Dealers and clients in these sites seemed content with what they observed on market screens. On the other hand, in the fourth site, the domestic retail investors and their intermediary seemed to go beyond the market screens and relied on their network relationships to access what I call “private” information. This information was mainly about these guided moves in shares and what a number of influential actors in share trading were up to. In the fourth site, 20 % of the stories relied on this type of “private” knowledge. The three “mainstream” domestic sales sites on the other hand relied on this type of “private knowledge” in less than 5 % of the cases (in one field site, one dealer and his high net worth client skewed the instance of private knowledge use single-handedly –otherwise the percentage was less than 2%).

This last example is quite telling about the post-2001 cognitive revolution that took place in the ISE. A great majority of the domestic retail investors do no longer rely on the 1990s’ most significant type of information, namely “private” information. In today’s ISE, majority of domestic retail investors make their investment decision in accordance with the data/information flows from the world economies and markets and Turkey as available in real-time on their market screens. This is despite the fact that short-term investment disposition of domestic retail investors shape the use of these data/information flows, mostly into an opportunistic cognitive stance.

In fact, the local data vendors have been catering for this opportunistic stance of domestic retail investors by generating calculation and representation modules on market screens that allow investors to harness a plethora of data/information on price, trading volume, and data on companies and economies. On the other hand, the most important cognitive device among institutional investors, especially foreigners, seems to be analyst reports on companies, sectors and macro economy and politics of Turkey. These reports are based on calculative and probabilistic frames that forecast future price movements. What I observed during my residence in the institutional sales departments was that most of the in situ stories told to clients were based on or disciplined by these analyst reports and thus paid attention to the calculated risk and return projections.

This was unlike the majority of stories told in the domestic sales departments that looked to short-term news and market movements abroad, especially in the DOW (USA) and the DAX (Germany)! I also observed that domestic retail investors had a knack in turning all types of information/data flows into short-term trading opportunities. They did so with the vernacular knowledge about the ISE's internal dynamics (for instance, that domestic retail investors traded frequently in the ISE according to what happened abroad- this actually sustained a perception of one-way correlation between the world markets and the ISE). That was why domestic retail investors perceived analyst reports as yet another opportunity to do short-term trades or even ask themselves the question whether foreigners would do the opposite of what they said in their analyst reports. In my thesis, I discussed the historical roots of these distinctive cognitive schemata among the different types of investors in the ISE. This discussion was a more substantial version of my article in Competition and Change.

In sum, I stress the following two points in my thesis. First of all, despite the digitization in financial markets which have brought more and more events and actions in to a calculative and abstract space, market actors, irrespective of their roles, identities and resources, make sense of these digitized and abstracted flows in a narrative mode. This means that market actors cannot be conceptualized as cognitive creatures that rely solely on calculation. Secondly, because financial markets are formed of individual and organisational actors who have different historical roles, identities and resources, one can talk of distinctive cognitive schemata and consequent differences in storytelling outcomes. This undermines the normative notion of a unitary universal rationality for all the market actors in financial markets.

My gratitude goes to all of the market actors who helped me in my field research in Istanbul. Without them, this study would never have been completed.

"Finans Piyasalarinda Anlamlandirma ve Hikaye Anlatimi: Istanbul Borsasi Vakasi"

19 Nisanda doktora tezimi basariyla savundum. Tezimin basligi "Finans Piyasalarinda Anlamlandirma ve Hikaye Anlatimi: Istanbul Borsasi Vakasi". Basliktan biraz anlasilacagi uzere piyasa aktorlerinin dijital uzaktan erisim piyasalarinda gunluk haber ve veri akisini nasil anlamlandirdiklari ve bunu yaparken hikaye/anlantilari nasil kullandiklarini inceledim. Anlatidan kastim gunluk hayatta olaylar arasinda sebep sonuc ve baska iliskileri hikaye formatinda nasil kurdugumuz. Aslinda hikaye/anlati yani "storytelling" insanlarin hayatlarinda en cok basvurduklari anlamlandirma yontemi. Insanlar bunu yaparken zaman ve sebep sonuc iliskisini kendilerine rehber olarak aliyorlar. Yani aciklamaya calistigimiz olaylar sonuclar bir kronoloji otesi sebepsellik icinde anlam kazaniyor. Diger yontem ise daha bilimsel olan, var olan bilinen bilimsel katagorik gerceklerden yola cikarak olan olaylari bu kategorik gerceklerin bir yansimasi olarak zamandan ve mekandan bagimsiz gormek.Tabi insanlar hikaye anlatirken bu kategorik gerceklerden de faydalaniyorlar fakat burada onemli olan hikayenin gozlenen bilenen olaylari sebeb sonuc icinde bir siraya koymasi.

Dijital finans piyasalarin ilginc bir ozelligi dunyanin dort bir tarafindan haber ve verileri akim (flow) seklinde piyasa aktorlerinin bilgisayar ekranlarina aktarmasi. Yani haberler ve veri (fiyat verisi dahil olmak uzere) kendi iclerinde sirali bir sekilde akmakta. Bircok akim bir araya geldiginde ise piyasa aktorleri icin bu akimlar arasinda hikaye formatinda sebep sonuc iliski kurmak daha kolay hale gelmekte. Piyasa aktorleri bunu yaparken kategorik gerceklerden faydalanmakla beraber (buna bagli olarak degerleme modelleri, risk analizi araclari kullanilabilir) hikaye/anlati formati anlamlandirma ve gecmis ve gelecekle ilgili bilinmezlikleri minimize etme konusunda en cok basvurulan yontemlerden biri. Bu finans teorisinin fiyatlarin var olan butun haberleri yansittigi, yani gecmisin aslinda bilindigi onermesine de ters bir durum teskil etmekte. Bunun en onemli sebebi bas dondurucu yogunlukta ve coklukta akan bilgi/veri akisi, ekranlarda her an var olmasina ragmen, bu akisin toplami kendi basina bir anlam ifade etmemekte. Yani ekranlar dile gelip piyasa aktorlerine olan biteni yorumlamamakta! Bu anlami /yorumu piyasa aktorleri kendi bilissel cabalariyla yaratip yatirim faaliyetlerine baglamak durumunda.

Iste benim tezim bu noktada su sorulari cevapliyor: Piyasa aktorleri gercekten hikaye/anlati yontemine basvuruyorlar mi? Eger basvuruyorlarsa, acaba anlattiklari hikayeler arasinda icerik ve mantik acisindan bazi farkliliklar var mi? Varsa bu farkliliklar neden kaynaklaniyor? Bu sorulari Istanbul Borsasinda yaptigim gozlem calismalariyla cevaplamaya calistim. 4 araci kurum ve bir portfoy yonetim sirketinde (2008/2009 yillarinda borsa islem hacminin yaklasik %8'ini gerceklestirdiler) yaklasik 75 tam-gun piyasa aktorlerini gozlemleyerek onlarin anlik anlamlandirma faaliyetlerini kaydettim. Buradan cikan anlatilarla/hikayelerle (1200 civarinda) bu sorulari cevaplamaya calistim. Oncelikle piyasa aktorleri anlatilara cok sik basvurmakta. Piyasa ekranlarindaki akislari surekli sekilde anlamlandirmaya calisip bunlari yatirim kararlarina baglama ugrasi icerisindeler. Fakat burada piyasa aktorlerinin kisisel ve kurumsal kimlikleri (ornegin araci kurumun sadece yerli bireysel yatirimcilara veya yabanci kurumsal yatirimcilara hizmet vermesi gibi) anlatilan hikayelerin icerigini etkilemekte. Bir ornek vermek gerekirse, gozlemledigim uc ayri yurtici satis departmaninda anlatilan hikayelerin %40'indan fazlasi yurtdisi piyasalarda ve ekonomilerde ne olduguna dair. Bir araci kurumda, vadeli islemler piyasinda aktif olarak islem yapan yerli yatirimcilara hizmet esnasinda, bu oran % 54'e kadar cikmakta. Ote tarafta ise, yabanci kurumsal yatirimcilara hizmet veren iki departmanda bu oran %20'nin altinda. Daha da ilginci, yurtici satis departmanlari bu hikayelerin buyuk bir kismini musterilerine anlatirken, kurumsal satis departmanlarinda bu hikayelerin cogu departman icinde kalmakta. Aslinda anlam/icerik bazinda bu farkliliklar bizlere sunu anlatmakta, araci kurumlar musteri tiplerine gore farkli bilissel cerceveler gelistirip ona gore piyasadaki veri akisini yorumlamakta. Turkiye Sermaye Piyasasi Araci Kuruluslar Birligi (TSPAKB) istatistiklerine gore, yerli bireysel yatirimcilar kisa vadeli yatirim yapip cok fazla islem yapmakta. Ote tarafta yabanci kurumsal yatirimcilar portfoylerini cok daha uzun sure ellerinde tutup islem hacminde o kadar etkili olmamakta. Bu tercihlerin yansimalari piyasa aktorlerinin anlattiklari hikayelerin iceriginde ve sikliginda gorulmekte.

Farkli bilissel cercevelere bir baska ornek ise gene yerli bireysel yatirimcilardan gelmekte. Ornegin gozlemledigim uc yurtici satis departmanindaki yatirimcilarin cogu, ki bu yatirimcilar TSPAKB'nin istatistiklerine gore yerli yatirimcilar arasinda en onemli 100 bin kisilik grup icindeler hisse sahipligi anlaminda, buyuk ve likit tahtalarda islem yaparken, bir dorduncu gozlem yerinde, bir araci kurumun subesinde, daha kucuk ve az likit tahtalarda da islem yapan yatirimcilari gozlemleme sansim oldu. Bu yatirimcilar digerlerinin aksine, piyasa ekranlarinin otesindeki ozel bilgilere ulasilabilecek cesitli sosyal aglar icinde bulunmaktalar. Ornegin piyasamizda etkili olan yerli spekulatorler ve onlarin yarattigi momentum veya gudumlu fiyat hareketleri. Calismamda bu tur bilgileri ozel (private) bilgi olarak adlandirdim. Sonucta subede gozlemledigim bu tip yerli bireysel yatirimcilar, anlattiklari hikayelerin % 20'sinde bu tip bilgilere basvurup piyasa ekraninda olan olaylari anlamlandirdilar. Bu oran diger uc yurtici satis departmanda % 5'in altinda.

Bu son ornek aslinda 2001 sonrasi Istanbul Borsasinda yasanan bilissel devrimin en iyi orneklerinde birisi. Artik yerli yatirimcilarin onemli bir kismi 1990larin en onemli ozelliginden olan "ozel" bilgi kullanma yerine, yatirim faaliyetlerini piyasa ekraninda var olan bilgi ve haber akisina gore yapmakta. Tabi yerli bireysel yatirimcinin devam eden kisa vadeli yatirim aliskanligi bu bilgi akisini daha firsatci kullanmasina zemin hazirlamakta. Piyasa ekranlari da bu kisa vadeli egilime hizmet eden cesitli dijital araclar sunmakta yatirimciya. Obur tarafta ise, kurumsal yatirimcilar arasinda en onemli bilissel araclardan biri analist raporlari, yani sirketlerin nakit ve gider akislarini hesaplayan ve buna gore uzun vadeli fiyat tahmininde bulunan anlatilarla hesaplari birbirine ekleyen analizler. Gozlemlerimden cikarttigim sonuc yabanci yatirimcilara anlatilan hikayelerin cogu bu analist raporlarindaki cercevelerden yani uzun vadeli hesaplanabilir firsat ve risklerden ilham almakta, yurtdisinda DOW'da DAX'ta ne oldugundan degil! Diger taraftan yerli bireysel yatirimcilara anlatilan hikayeler bilgi akisinin her turlusunden kisa vadeli faydalanmaya yonelik ve Istanbul Borsasinin kendi ic dinamiklerini (ornegin yerli yatirimcilarin yurtidisinda olan biten olaylara gore cok sik islem yapmasini) goz onune alan hikayeler. O sebepten yerli bireysel yatirimcilar icin analist raporlari ya kisa vadeli al sat firsati ya da acaba yabancilar rapor cikarip tersini mi yapiyor sorusunu sorma firsati olarak gorulebiliyor. Tezimde ayrica bu bilissel cerceve farkliliklarinin tarihsel sebeplerini de tartistim. Bu tartisma bir onceki gonderimde bahsettigim makaledeki tartismanin bir benzeri fakat daha kapsamlisi.

Sonuc olarak tezimde su iki noktaya vurgu yapiyorum. Finans piyasalarinda dijitallesmeye ragmen, ki bu dijitallesme daha cok sayida olayin sayisallastirilip hesaplanabilir hale getirmekte, piyasa aktorleri soyutlastirilan, sayisallastirilan, dijitallestirilen bu akimlari anlati/hikaye formatinda anlamlandirmakta. Yani piyasa aktorleri sadece sayisal hesaplar yapan bilissel varliklar degil. Buna bagli olarak ikinci vurgum ise, finans piyasalarinin farkli bilissel cerceveleri ve gecmisleri ve kimlikleri olan gruplardan olusmus olmasindan dolayi, bu anlatilan hikayelerin birbirinden farkli olmasi. Yani finans piyasasindaki gruplar anlamlandirma ve yatirim faaliyetlerinde farkliliklar gostermekte. Bu da finans piyasalarinda tek bir rasyoneliteden ve bireysel, izole piyasa aktorlerinden bahsetmeyi zorlastirmakta.

Calismamda bana deskte olan tum piyasa calisanlarina, yatirimcilara ve regulatorlere minnettarim. Onlarsiz bu calismayi bitirmek dusunulemezdi.