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

Author

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  • Darren Duxbury
  • Tommy Gärling
  • Amelie Gamble
  • Vian Klass

Abstract

We develop a conceptual analysis and account of how emotions influence behavior in financial markets. To motivate our approach and to establish the need for such research, we first review the increasingly important literature on emotions in financial markets. While emotions influence investors in financial markets, there is a lack of precision concerning the exact nature of these influences. To remedy this, we identify and address a number of issues deriving from the current state of the finance literature. One issue concerns the lack of clarity in defining different emotion constructs. Another is the lack of a general emotion-based account of financial behavior. Our contribution is a classification of emotion-related phenomena and an emotion-based account of how anticipatory and anticipated emotions interact to determine investors’ buy and sell preferences in asset markets. Preliminary experimental results support our emotion-based account.

Suggested Citation

  • Darren Duxbury & Tommy Gärling & Amelie Gamble & Vian Klass, 2020. "How emotions influence behavior in financial markets: a conceptual analysis and emotion-based account of buy-sell preferences," The European Journal of Finance, Taylor & Francis Journals, vol. 26(14), pages 1417-1438, September.
    • Handle: RePEc:taf:eurjfi:v:26:y:2020:i:14:p:1417-1438
    DOI: 10.1080/1351847X.2020.1742758
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    Citations

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    Cited by:

    1. Chundakkadan, Radeef & Nedumparambil, Elizabeth, 2022. "In search of COVID-19 and stock market behavior," Global Finance Journal, Elsevier, vol. 54(C).
    2. Liu, Ya-Fei & Li, Hui & Liang, Sai, 2022. "Any reputation is a good reputation: influence of investor-perceived reputation in restructuring on hospitality firm performance," Annals of Tourism Research, Elsevier, vol. 92(C).
    3. Vamossy, Domonkos F., 2021. "Investor emotions and earnings announcements," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    4. Hamelin, Nicolas & Bonelli, Marco I., 2022. "Traders’ anticipatory feelings and traders’ profitability: An exploratory study," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    5. Khurram Ajaz Khan & Zdenko Metzker & Justas Streimikis & John Amoah, 2023. "Impact of negative emotions on financial behavior: An assessment through general strain theory," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(1), pages 219-254, March.
    6. Domonkos F. Vamossy & Rolf Skog, 2021. "EmTract: Extracting Emotions from Social Media," Papers 2112.03868, arXiv.org, revised Jun 2023.
    7. Domonkos F. Vamossy, 2020. "Investor Emotions and Earnings Announcements," Papers 2006.13934, arXiv.org, revised Jun 2020.
    8. Wang, Wenzhao & Duxbury, Darren, 2021. "Institutional investor sentiment and the mean-variance relationship: Global evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 415-441.
    9. Juan Carlos Matallín‐Sáez & Amparo Soler‐Domínguez & Salvador Navarro‐Montoliu & Diego Víctor de Mingo‐López, 2022. "Investor behavior and the demand for conventional and socially responsible mutual funds," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(1), pages 46-59, January.
    10. Sherif, Mohamed, 2020. "The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    11. Goodell, John W. & Kumar, Satish & Rao, Purnima & Verma, Shubhangi, 2023. "Emotions and stock market anomalies: A systematic review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).

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