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The Role of Feelings in Investor Decision-Making

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  • Brian M. Lucey
  • Michael Dowling

Abstract

This paper surveys the research on the influence of investor feelings on equity pricing and also develops a theoretical basis with which to understand the emerging findings of this area. The theoretical basis is developed with reference to research in the fields of economic psychology and decision-making . Recent advancements in understanding how feelings affect the general decision-making of individuals, especially under conditions of risk and uncertainty [e.g. Loewenstein et al . (2001). Psychological Bulletin 127: 267-286], are covered by the review. The theoretical basis is applied to analyze the existing research on investor feelings [e.g. Kamstra et al . (2000). American Economic Review (forthcoming); Hirshleifer and Shumway (2003). Journal of Finance 58 (3): 1009-1032]. This research can be broadly described as investigating whether variations in feelings that are widely experienced by people influence investor decision-making and, consequently, lead to predictable patterns in equity pricing. The paper concludes by suggesting a number of directions for future empirical and theoretical research. Copyright Blackwell Publishers Ltd, 2005.

Suggested Citation

  • Brian M. Lucey & Michael Dowling, 2005. "The Role of Feelings in Investor Decision-Making," Journal of Economic Surveys, Wiley Blackwell, vol. 19(2), pages 211-237, April.
  • Handle: RePEc:bla:jecsur:v:19:y:2005:i:2:p:211-237
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