Financial markets aren’t just driven by cold, hard numbers and rational calculations. Decades of research in behavioral finance have revealed that human psychology plays a crucial role in how markets move. Behavioral finance examines how emotions, cognitive biases, and social influences affect investor decisions—often leading to outcomes that traditional financial theory can’t explain.
Among the many psychological forces at play, the fear of missing out, or FOMO—that anxious feeling when we see others profiting from an investment opportunity and worry we’re being left behind—has emerged as a particularly powerful driver of market behavior. In financial markets, FOMO can trigger speculative surges, fuel herd behavior, and contribute to volatile market cycles. Think of the GameStop stock frenzy, bitcoin’s meteoric rises, or any market bubble where investors pile in, afraid of missing the next big thing.
While FOMO’s influence has been widely acknowledged anecdotally, measuring it systematically across global markets has remained a challenge—until now.
Introducing the Global FOMO Index
Yosef Bonaparte, author of the May 2025 study “Global FOMO: The Pulse of Financial Markets Worldwide,” introduced the Global FOMO Index, a novel way to quantify this psychological force using data from Google searches.
The index tracks six key search terms from 2004 through 2024:
- “FOMO”
- “Buy Stock”
- “Get Rich Quick”
- “Missed Out”
- “Trending Now”
- “Bitcoin Price”
Each term captures a different facet of FOMO-driven behavior, from the explicit anxiety of missing out to the actionable intent of jumping into markets. By combining monthly Google Trends data for these terms, Bonaparte created a composite measure that reflects the pulse of global investor sentiment.
The index revealed a clear upward trend over two decades, with dramatic spikes in 2018 and 2021 coinciding with bitcoin hitting $20,000 and $69,000, respectively. The index reached a new peak in 2025 after President Donald Trump’s reelection and bitcoin surging past $100,000—demonstrating how political events and cryptocurrency milestones amplify speculative interest.
Perhaps most striking is the index’s statistically significant persistence: With a serial correlation coefficient of 0.991 (t-stat of 68), the FOMO sentiment is highly predictable and stable over time, making it a reliable metric for understanding market dynamics.
FOMO’s Impact on Markets
The research reveals three significant relationships between elevated FOMO and market outcomes:
1) Lower Returns
Contrary to what you might expect, periods of heightened FOMO are associated with lower stock market returns—specifically, a decline of 1.7% to 2%. This suggests that when collective excitement peaks, the party is already over.
2. Reduced Volatility
Elevated FOMO correlates with decreased market volatility by approximately 2%. This counterintuitive finding suggests that when investors converge in their sentiment-driven behavior—all responding to similar cues and information—markets become less uncertain in the short term. The crowd moves together, creating temporary stability.
3) Weaker Risk-Adjusted Returns
The most concerning finding for investors is that high FOMO periods are associated with a 4% decline in Sharpe ratios (which measure risk-adjusted returns). Markets become less efficient when FOMO takes the wheel.
The Democracy Factor
One of the most intriguing discoveries in the research is that FOMO’s impact isn’t uniform across countries—it’s significantly stronger in democratic nations.
Using the Economist Intelligence Unit’s democracy scores, Bonaparte found that the relationship between FOMO and market outcomes is amplified in more democratic countries. Why? In democracies, investor behavior appears more responsive to collective sentiments, online narratives, and media-driven stories. The free flow of information and social influence that characterizes democratic societies may make investors more susceptible to FOMO-driven decision-making.
This finding highlights an important political dimension to market psychology: The institutional environment in which investors operate shapes how sentiment translates into market outcomes.
His findings led Bonaparte to conclude, “Heightened FOMO predicts lower returns, reduced volatility, and weaker Sharpe ratios, with a stronger effect in democratic countries.”
Key Takeaways for Investors
What should investors learn from this research? Here are the practical implications:
1) Recognize FOMO as a Contrarian Indicator
If you feel an overwhelming urge to jump into a hot investment because “everyone is making money,” take a step back. The research suggests that peak FOMO often signals lower future returns and poor risk-adjusted performance. Your anxiety about missing out may actually be protecting you from buying at the top.
2) Question the Herd
The reduction in volatility during high-FOMO periods creates an illusion of stability. Just because markets seem calm and everyone is moving in the same direction doesn’t mean it’s safe. This behavioral convergence can mask underlying risks and lead to complacency.
3) Focus on Risk-Adjusted Returns
The decline in Sharpe ratios during FOMO periods is a clear warning: Chasing excitement often means accepting poor returns relative to the risks you’re taking. Stick to disciplined investment strategies that prioritize long-term, risk-adjusted performance over fear-driven speculation.
4) Be Aware of Your Environment
If you’re investing in democratic countries with high media saturation and social media influence, recognize that you may be more vulnerable to sentiment-driven mistakes. The same openness that makes these societies dynamic can amplify psychological biases in financial decision-making.
5) Use FOMO as a Tool, Not a Guide
The Global FOMO Index can serve as a valuable sentiment indicator—a gauge of when collective emotion is running too hot. Rather than following FOMO, savvy investors might use it to identify periods of excessive optimism that warrant caution.
Psychology, Technology, and Politics
This research contributes to our growing understanding of how psychology, technology, and politics intersect in modern financial markets. The Global FOMO Index demonstrates that behavioral forces can be measured, tracked, and understood systematically—not just dismissed as irrational noise.
As digital media continues to accelerate information flows and amplify social influences, understanding sentiment-driven behavior becomes increasingly critical. FOMO isn’t just a millennial buzzword; it’s a measurable psychological force with real financial consequences.
The next time you feel that nagging anxiety about a hot investment opportunity, remember that FOMO might be the very thing helping you avoid a poor investment decision. In markets as in life, sometimes the best move is the one you don’t make.
