Human Psychology and Market Seasonality

The impact of certain psychological factors of investors and managers on the capital structure

“…However, there exists, fortunately for the investors, an adviser institute which can help them to remain rational, regardless of how the market would behave in improving their odds to stay focused on long-term investment strategy and therefore realize their own benefit. Kramer (2014) says that some aspects of people psychology induced by external factors such as the changes of the seasons play a very important role in making financial decisions of individuals with significant economic consequences, which are perceived even at the level of the entire market. Consequently, psychological explanations are necessary to clear up the real decision-making process, especially in cases where there are rumors that affect the mood of market participants and their behavior at the level of total financial market.…”

Behavioral finance: insights from experiments II: biases, moods and emotions

“…Drawing a distinction between expected emotions and immediate emotions, with the latter further distinguished between integral and incidental emotions, they note that only incidental emotions, commonly referred to as moods in the psychology literature and elsewhere, represent a challenge to the rational economic view. As such, the distinction between mood and emotion is an important one to maintain, as acknowledged by Ackert et al (2003) and Kramer (2014), for example, but one commonly blurred in the finance literature, either implicitly or explicitly. We maintain the distinction here, reviewing the experimental evidence in relation to the influence first of moods and then of emotions on financial behavior, discussing the findings from the empirical finance literature briefly in both cases.…”

“…For a detailed discussion of the empirical literature examining the relationship between investor mood and equity returns, we direct the reader to Lucey and Dowling (2005), Shumway (2010) and Kramer (2014). Note, however, a common feature of the 161 Behavioral finance: insights from experiments empirical approach is the use of psychology to motivate suitable proxies of unobservable investor mood.…”