How emotions influence behavior in financial markets: a conceptual analysis and emotion-based account of buy-sell preferences

Duxbury, Darren; Gärling, Tommy; Gamble, Amelie; Klass,

doi:10.1080/1351847x.2020.1742758

Cited by 53 publications

(31 citation statements)

References 140 publications

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“…Beyond the immediate tragedies of death and disease, indirect effects through fear are taking hold of a significant number of people and investors around the world, which has had dramatic impacts on financial markets all over the world ( Liu et al, 2019 , Papadamou et al, 2020 , Carter et al, 2020 , Duxbury et al, 2020 , Al-Awadhi et al, 2020 ). Hence, the spread of COVID-19 has had a major impact on the performance of stock market indices globally, as can be seen from Table 1 .…”

Section: Introductionmentioning

confidence: 99%

The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis

Sherif

2020

Journal of Behavioral and Experimental Finance

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This paper examines the rapid spread of Coronavirus (COVID-19) and its short-term impact on the Shariah-compliant UK Dow Jones market index to capture the dynamic behavior of stock returns at economy and industry levels. Using daily data over the period January 20 to May 20 and ten UK industrial sector groupings, the findings suggest a strong and statistically significant relationship between the COVID-19 pandemic and the performance of the conventional stock market index. The findings also suggest that the disease interacts negatively but insignificantly with the Dow Jones faith-based ethical (Islamic) index compared to its UK counterpart. In addition, through an analysis of sector groupings, the paper shows that the stock returns of the information technology sector performed significantly better than the market, while stock returns of consumer discretionary sector, which includes transportation, beverages, tourism and leisure, consumer services performed significantly worse than the market during the COVID-19 outbreak. Other sector groupings fail to yield significantly plausible parameter values.

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Section: Introductionmentioning

confidence: 99%

The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis

Sherif

2020

Journal of Behavioral and Experimental Finance

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“…Tuckett is describing the life of an onion trader not a financial asset manager. This is precisely why more recent work on emotions in financial markets has eschewed the problematic articulated by Taffler and Tuckett in favour of understanding how emotions affect participants in markets under ordinary trading conditions [10].…”

Section: Onions Vsmentioning

confidence: 99%

The Trouble with Minding Markets: Emotional Finance in Context

Coffman¹

2021

Investment Strategies in Emerging New Trends in Finance

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The term ‘Emotional Finance’ normally denotes a methodological approach advocated by Richard Taffler and David Tuckett, which they intended as a challenge both to Behavioral Finance and to mainstream finance and economics. In the wake of the Great Financial Crisis, Emotional Finance received a warm reception from regulators, the financial press, and the CFA Institute. Nearly a decade on, their ideas have largely failed to achieve traction in the academic literature, and continue to struggle to find empirical validation. Their approach is essentially an application of Kleinian psychoanalysis to financial markets, albeit without the terminological rigor that psychoanalytic practitioners might expect. Because their approach is inherently interdisciplinary, it has rarely been subject to scrutiny, as few psychoanalytic commentators feel qualified to comment on financial markets, and fewer finance academics feel comfortable commenting on the psychoanalytic theory. This chapter characterizes the main theoretical claims of Emotional Finance, and subjects each of them to scrutiny, finding them largely untenable. Although financial bubbles are commonplace and emotional responses to markets unremarkable, the subsidiary arguments advanced by advocates of Emotional Finance to support their primary claims are found wanting. The interpretative strategy of Emotional Finance is fundamentally flawed. Although it is fruitful to analyze the role of emotions in financial markets, more precise, rigorous and realistic approaches to these problems are needed.

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“…They further hypothesized that the seasonal emotional cycle exemplified by the seasonal affective disorder (SAD) [ 14 ] is a mediator linking the asset price transition and the length of daylight. This SAD hypothesis, if true, is important both in economics and psychology because it is a typical example challenging the mainstream asset pricing models building upon strict economic rationality [ 15 ] and is one of the few indications of the effect of emotions on financial decision making in the real world [ 16 – 18 ]. To elucidate the importance of this topic, Kamstra, Kramer & Levi [ 2 ], the seminal study on this topic, is cited in 1087 papers according to Google scholar as of November 20, 2020.…”

Section: Introductionmentioning

confidence: 99%

“…However, other studies have remained dubious regarding the effect of SAD on stock prices [ 24 – 27 ]. A major criticism is that the studies claiming the effect of SAD on asset price transitions just confirm the association between the length of daylight and asset prices and the involvement of SAD has not been directly examined, leaving the causal mechanisms linking length of daylight to asset prices unexplored [ 18 , 25 ]. In addition to these criticisms, the existence of SAD itself has been challenged by recent studies in psychology [ 14 , 22 ].…”

Section: Introductionmentioning

confidence: 99%

Are consumer confidence and asset value expectations positively associated with length of daylight?: An exploration of psychological mediators between length of daylight and seasonal asset price transitions

Sekizawa

Konishi

2021

PLoS ONE

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Many economists claim that asset price transitions, particularly stock price transitions, have a seasonal cycle affected by length of daylight. Although they claim that the seasonal affective disorder (SAD) is a mediator between the length of daylight and asset price transitions, recent studies in psychology have been inconclusive about the existence of SAD, and some economics studies disagree regarding the involvement of SAD in seasonal stock price transitions. The purpose of the present study is to examine if there is any psychological mediator linking length of daylight and seasonal asset price transitions as an alternative or supplement to SAD. As a possible mediator, we examined Japan’s consumer confidence index (CCI) and asset value expectations (AVE), which indicate people’s optimism for future economy and are generated from a monthly household survey by the Japanese government. We analyzed individual longitudinal data from this survey between 2004 and 2018 and estimated four fixed-effects regression models to control for time-invariant unobserved heterogeneity across individual households. The results revealed that, (i) there was a seasonal cycle of CCI and AVE; the trough occurred in December and the peak in early summer; (ii) the length of daylight time was positively associated with CCI and AVE; and (iii) the higher the latitude, the larger the seasonal cycle of CCI and AVE became. These findings suggest that the length of the daylight may affect asset price transitions through the cycle of optimism/pessimism for future economy exemplified by the CCI and AVE.

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How emotions influence behavior in financial markets: a conceptual analysis and emotion-based account of buy-sell preferences

Cited by 53 publications

References 140 publications

The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis

The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis

The Trouble with Minding Markets: Emotional Finance in Context

Are consumer confidence and asset value expectations positively associated with length of daylight?: An exploration of psychological mediators between length of daylight and seasonal asset price transitions

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