The Influence of Affective Reactions on Investment Decisions

Abstract

The present research aims to show how investors' affective reactions toward a fund influence their decision to sell the investment. Participants were presented with either a socially responsible or a traditional fund. After completing a mental images task, participants were asked to state the price at which they were willing to sell the fund and their confidence in future positive performance. Participants were willing to sell the fund at different prices depending on their affective reactions. The affective reactions also influenced participants' confidence. Furthermore, we found that the socially responsible fund induced a more positive reaction than the ordinary fund

Emerging new themes in environmental, social and governance investing: a systematic literature review

“…Their social values matter when they make an investment (Diouf et al ., ), as do their social identity (Bauer and Smeets, ) and their social conscience (Perez‐Gladish et al ., ). The investor's reasoning has been investigated with respect to ethical frameworks (Viviers et al ., ), psychological processes (Bénabou and Tirole, ; Rubaltelli et al ., ) and behavioural influences (Glac, ; Bilbao‐Terol et al ., ; Pilaj, ).…”

Mood and the Market: Can Press Reports of Investors' Mood Predict Stock Prices?

“…In a somewhat similar vein, Tetlock [39] found that very high or very low levels of a Pessimism Factor predicted high trading volume in the Dow. Rubaltelli, Pasini, Rumiati, Olsen, and Slovic [119] likewise found that extreme levels of pleasant and unpleasant moods (but not moderate mood levels) led to the selling of losing funds. Although we do not know the mood activation levels in these prior studies, it might be the case that such activation played a role in the reported results.…”

The Rationality and Irrationality of Financing Green Start-Ups

“…Its establishment as a separate study can be said to have happened organically based on mounting empirical evidence gathered in studies on financial markets that contributed to contesting the "efficient markets hypothesis" underlying modern finance theory, which has cemented the notion of the market as an efficient, "near-perfect allocational device" ( [79], p. 377). Such evidence includes amongst others observations of investors practicing satisficing rather than optimising [80], the use of intuition and emotions in investment decision making [81], an impact of investor mood on stock markets [82] as well as an underestimation of risk and excessive trading [83], which also leads to a lack of diversification [84] and herding behaviour [85].…”