How is the increasing role of interacting algorithms changing financial markets? In his November 2025 paper entitled "Algorithmic Exuberance", Marc Schmitt presents an Algorithmic Exuberance model, which automatically stimulates market volatility from two coupled feedback channels (see the figure below):
- Market-algorithmic reflexivity (trading systems learning from one another).
- Information-algorithmic reflexivity (algorithmic amplification of news, narratives and sentiment).
The model derives a Reflexivity Index (RI) that quantifies the strength and persistence of market volatility from these feedback channels, and measurable Reflexivity Share of Variance (RSV) and Implied Reflexivity (IR) components. Using broad U.S. stock market data from 1980 through 2024, he finds that:
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