Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-12-03T19:54:19.291Z Has data issue: false hasContentIssue false
  • English
  • Français

Do Happy People Make Optimistic Investors?

Published online by Cambridge University Press:  18 July 2014

Guy Kaplanski ,
Haim Levy ,
Chris Veld  and
Yulia Veld-Merkoulova
Guy Kaplanski
Affiliation:
[email protected], Graduate School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel
Haim Levy*
Affiliation:
[email protected], School of Business Administration, Hebrew University of Jerusalem, Mt Scopus, Jerusalem 91905, Israel
Chris Veld
Affiliation:
[email protected], Department of Banking and Finance, Monash University, Caulfield East, VIC 3145, Australia
Yulia Veld-Merkoulova
Affiliation:
[email protected], Department of Banking and Finance, Monash University, Caulfield East, VIC 3145, Australia.
*
*Corresponding author: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Do happy people predict future risk and return differently from unhappy people, or do individuals rely only on economic facts? We survey investors on their subjective sentiment-creating factors, return and risk expectations, and investment plans. We find that noneconomic factors systematically affect return and risk expectations, where the return effect is more profound. Investment plans are also affected by noneconomic factors. Sports results and general feelings significantly affect predictions. Sufferers from seasonal affective disorder have lower return expectations in the autumn than in other seasons, supporting the winter blues hypothesis.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 50 , Issue 1-2 , April 2015 , pp. 145 - 168
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Allais, M. “Le Comportement de l’Homme Rationnel Devant le Risque: Critique des Postulats et Axiomes de l’École Américaine.” Econometrica, 21 (1953), 503–546.Google Scholar
Alvarez, R. M., and Brehm, J.. “American Ambivalence Towards Abortion Policy: Development of a Heteroskedastic Probit Model of Competing Values.” American Journal of Political Science, 39 (1995), 1055–1082.Google Scholar
Ashby, F. G.; Isen, A. M.; and Turken, A. U.. “A Neuropsychological Theory of Positive Affect and Its Influence on Cognition.” Psychological Review, 106 (1999), 529–550.Google Scholar
Ashton, J. K.; Gerrard, B.; andHudson, R.. “Economic Impact of National Sporting Success: Evidence from the London Stock Exchange.” Applied Economics Letters, 10 (2003), 783–785.Google Scholar
Baker, M., and Wurgler, J.. “Investor Sentiment in the Stock Market.” Journal of Economic Perspectives, 21 (2007), 129–151.CrossRefGoogle Scholar
Bellemaere, C.; Kröger, S.; andvan Soest, A.. “Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities.” Econometrica, 76 (2008), 815–839.Google Scholar
Cao, M., and Wei, J.. “Stock Market Returns: A Note on Temperature Anomaly.” Journal of Banking and Finance, 29 (2005), 1559–1573.Google Scholar
Dolvin, S. D., and Pyles, M. K.. “Seasonal Affective Disorder and the Pricing of IPOs.” Review of Accounting and Finance, 6 (2007), 214–228.Google Scholar
Dolvin, S. D.; Pyles, M. K.; andWu, Q.. “Analysts Get SAD Too: The Effect of Seasonal Affective Disorder on Stock Analysts’ Earnings Estimates.” Journal of Behavioral Finance, 10 (2009), 214–225.CrossRefGoogle Scholar
Dreisbach, G., and Goschke, T.. “How Positive Affect Modulates Cognitive Control: Reduced Perseveration at the Cost of Increased Distractibility.” Journal of Experimental Psychology: Learning, Memory, and Cognition, 30 (2004), 343–353.Google Scholar
Edmans, A.; García, D.; andNorli, O.. “Sports Sentiment and Stock Returns.” Journal of Finance, 62 (2007), 1967–1998.Google Scholar
Egloff, B.; Tausch, A.; Kohlmann, C.-W.; andKrohne, H. W.. “Relationships Between Time of Day, Day of the Week, and Positive Mood: Exploring the Role of the Mood Measure.” Motivation and Emotion, 19 (1995), 99–110.CrossRefGoogle Scholar
Etzioni, A. “Normative-Affective Factors: Toward a New Decision-Making Model.” Journal of Economic Psychology, 9 (1988), 125–150.Google Scholar
Goetzmann, W. N., and Zhu, N.. “Rain or Shine: Where Is the Weather Effect?” European Financial Management, 11 (2005), 559–578.Google Scholar
Graham, J. R.; Harvey, C. R.; and Huang, H.. “Investor Competence, Trading Frequency, and Home Bias.” Management Science, 55 (2009), 1094–1106.Google Scholar
Guiso, L.; Sapienza, P.; andZingales, L.. “Trusting the Stock Market.” Journal of Finance, 63 (2008), 2557–2600.CrossRefGoogle Scholar
Hanoch, Y. “ ‘Neither an Angel Nor an Ant’: Emotion as an Aid to Bounded Rationality.” Journal of Economic Psychology, 23 (2002), 1–25.Google Scholar
Harvey, A. C. “Estimating Regression Models with Multiplicative Heteroscedasticity.” Econometrica, 44 (1976), 461–465.Google Scholar
Helliwell, J. F., and Wang, S.. “Weekends and Subjective Well-Being.” Social Indicators Research, 116 (2014), 389–407.CrossRefGoogle Scholar
Hirshleifer, D., and Shumway, T.. “Good Day Sunshine: Stock Returns and the Weather.” Journal of Finance, 58 (2003), 1009–1032.Google Scholar
Howarth, E., and Hoffman, M. S.. “A Multidimensional Approach to the Relationship between Mood and Weather.” British Journal of Psychology, 75 (1984), 15–23.CrossRefGoogle Scholar
Isen, A. M. “A Role for Neuropsychology in Understanding the Facilitating Influence of Positive Affect on Social Behavior and Cognitive Processes.” In The Oxford Handbook of Positive Psychology, Lopez, S. J. and Snyder, C. R., eds. New York: Oxford University Press (2011), 503–518.Google Scholar
Johnson, E. J., and Tversky, A.. “Affect, Generalization, and the Perception of Risk.” Journal of Personality and Social Psychology, 45 (1983), 20–31.Google Scholar
Kamstra, M. J.; Kramer, L. A.; andLevi, M. D.. “Winter Blues: A SAD Stock Market Cycle.” American Economic Review, 93 (2003), 324–343.Google Scholar
Kamstra, M. J.; Kramer, L. A.; andLevi, M. D.. “Seasonal Variation in Treasury Returns.” Rotman School of Management Working Paper No. 1076644 (2011). Google Scholar
Kamstra, M.; Kramer, L. A.; andLevi, M. D.. “A Careful Re-Examination of Seasonality in International Stock Markets: Comment on Sentiment and Stock Returns.” Journal of Banking and Finance, 36 (2012), 934–956.CrossRefGoogle Scholar
Kamstra, M. J.; Kramer, L. A.; Levi, M. D.; andWermers, R.. “Seasonal Asset Allocation: Evidence from Mutual Fund Flows.” Working Paper, University of Maryland (2011). Google Scholar
Kaplanski, G., and Levy, H.. “Exploitable Predictable Irrationality: The FIFA World Cup Effect on the U.S. Stock Market.” Journal of Financial and Quantitative Analysis, 45 (2010a), 535–553.CrossRefGoogle Scholar
Kaplanski, G., and Levy, H.. “Sentiment and Stock Prices: The Case of Aviation Disasters.” Journal of Financial Economics, 95 (2010b), 174–201.Google Scholar
Keller, M. C.; Fredrickson, B. L.; Ybarra, O.; Cote, S.; Johnson, K.; Mikels, J.; Conway, A.; andWager, T.. “A Warm Heart and a Clear Head.” Psychological Science, 16 (2005), 724–731.Google Scholar
Kramer, L., and Weber, J. M.. “This Is Your Portfolio on Winter: Seasonal Affective Disorder and Risk Aversion in Financial Decision Making.” Social Psychological and Personality Science, 3 (2012), 193–199.Google Scholar
Levy, H. Stochastic Dominance: Investment Decision-Making under Uncertainty. Amsterdam, The Netherlands: Kluwer Academic Publishers (2006).Google Scholar
Lo, K., and Wu, S. S.. “The Impact of Seasonal Affective Disorder on Financial Analysts and Equity Market Returns.” Working Paper, University of British Columbia (2008). CrossRefGoogle Scholar
Mehra, R., and Sah, R.. “Mood Fluctuations, Projection Bias and Volatility of Equity Prices.” Journal of Economic Dynamics and Control, 26 (2002), 869–887.Google Scholar
Mersch, P. P. A.; Middendorp, H. M.; Bouhuys, A. L.; Beersma, D. G. M.; andvan den Hoofdakker, R. H.. “Seasonal Affective Disorder and Latitude: A Review of the Literature.” Journal of Affective Disorders, 53 (1999), 35–48.Google Scholar
Mitchell, R. L. C., and Phillips, L. H.. “The Psychological, Neurochemical and Functional Neuroanatomical Mediators of the Effects of Positive and Negative Mood on Executive Functions.” Neuropsychologia, 45 (2007), 617–629.Google Scholar
Nygren, T. E.; Isen, A. M.; Taylor, P. J.; andDulin, J.. “The Influence of Positive Affect on the Decision Rule in Risk Situations: Focus on Outcome (and Especially Avoidance of Loss) Rather than Probability.” Organizational Behavior and Human Decision Processes, 66 (1996), 59–72.Google Scholar
Pardo, A., and Valor, E.. “Spanish Stock Returns: Where Is the Weather Effect?” European Financial Management, 9 (2003), 117–126.Google Scholar
Saunders, E. M. “Stock Prices and Wall Street Weather.” American Economic Review, 83 (1993), 1337–1345.Google Scholar
Scherpenzeel, A., and Das, M.. “ ‘True’ Longitudinal and Probability-Based Internet Panels.” In Social and Behavioral Research and the Internet: Advances in Applied Methods and Research Strategies, Das, M., Ester, P., and Kaczmirek, L., eds. Boca Raton, FL: Taylor and Francis (2010), 77–103.Google Scholar
Van Rooij, M.; Lusardi, A.; andAlessie, R.. “Financial Literacy and Stock Market Participation.” Journal of Financial Economics, 101 (2011), 449–472.Google Scholar
Veld, C., and Veld-Merkoulova, Y. V.. “The Risk Perceptions of Individual Investors.” Journal of Economic Psychology, 29 (2008), 226–252.Google Scholar
Von Gaudecker, H.-M.; van Soest, A.; andWengström, E.. “Heterogeneity in Risky Choice Behavior in a Broad Population.” American Economic Review, 101 (2011), 664–694.CrossRefGoogle Scholar