Structural Coupling of Financial Markets and Media Coverage - the Case of the State Debt Crisis

In our project we focus on interdependent processes between financial markets and media coverage during times of financial turmoil. The main goal is to identify explanations for price movements on financial markets that are beyond the comprehension of crisis as a problem between the state and the market. Thus, it is not the question whether there is too much or too little market regulation, instead we emphasize the importance of information processing on financial markets and the subsequent entanglement of financial markets with mass media. From a systemics perspective, these processes are part of the structural coupling of two social systems, which perceive and implement new information, but only through their own systemic logic.

By examining the structural coupling we reveal patterns and causalities that are crucial for the understanding of financial market coordination through mass media products and vice versa. Especially the so called "state debt crisis" and its media coverage can be empirically viewed as the cause for major changes in the configuration of the financial markets. During that process state bonds get more and more volatile, deviating from the century old long-term investment cycles. No longer are interest payments the only way to gain profits with bonds, instead, short-term speculation becomes possible due to the heavily pending bond prices of crisis states like Greece, Portugal or Spain. The starting point for those fluctuations strongly correlates with the international media coverage about the possibility that states can actually fail financially. As a consequence, traditional evidence of financial stability like macroeconomic indicators or debt ratings have no measurable impact after the crisis on the increasing bond volatility. The process underlying this development is that media publications are much faster and already incorporated in the market prices when the reactions of states or rating agencies get published.