 Investor mood and financial marketsHui-Chu Shu Journal of Economic Behavior & Organization, 2010, vol. 76, issue 2, 267-282 Abstract: Numerous studies in recent decades have linked investor mood and financial market behavior, but most works have been empirical investigations. This paper bridges the gap between empirical findings and financial theory. By slightly modifying the Lucas (Lucas, R.E., 1978. Asset prices in an exchange economy. Econometrica 46, 1429-1445.) model, this study shows how investor mood variations affect equilibrium asset prices and expected returns. Analysis results indicate that both equity and bill prices correlate positively with investor mood, with higher asset prices associated with better mood. Conversely, expected asset returns correlate negatively with investor mood. Further, the mood effect on asset prices increases when investors are in a good mood, and mood variations exhibit a greater influence on equity markets than on bill markets. Results of this study suggest that investor mood is a vital factor in equilibrium asset prices and returns, and integrating investor mood into asset-pricing models helps to interpret the growing body of seemingly anomalous evidence regarding investor behavior. Keywords: Investor; mood; Asset; pricing; Behavioral; finance; Time; preference; Risk; attitude (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:76:y:2010:i:2:p:267-282 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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