RETRACTED: Assessing the impact of emotion on investors’ behavior and decision-making

PurposeAlthough the influence of emotions on decision-making has been well-examined in psychology and marketing, it has received relatively less empirical attention in finance. Our goal is to address this gap by analyzing the influence of emotional indicators obtained from news and social media on investment decisions and, eventually, the valuation of assets.Design/methodology/approachWe have four research questions. Specifically, we ask (1) whether news and social media, by using emotional appeals, potentially affect the market price of a corporation, both on an individual and collective basis? (2) To what degree do news and social media sentiment, both individually and together, impact investors’ responses to fresh information, such as earnings announcements? (3) Which form of media portrayal of human emotion has a more substantial impact on investors’ decision-making process? (4) What has the impact of news and social media over time been?FindingsWe have uncovered evidence indicating that investors’ emotions substantially impact their decision-making process. Emotions are crucial in shaping investors’ reactions to information signals and influencing market pricing. Positive emotions distinctly impact asset values and the market’s response to positive news in contrast to negative emotions. Positive emotions in individuals lead to a favorable market reaction to positive news and an unfavorable market reaction to negative news. The emotions generated from news media listings have a more significant influence on stock values than those gained from social media listings.Research limitations/implicationsThe research mainly focused on examining the influence of emotions on investor behavior before and during earnings presentations. To determine the duration of emotional mispricing, we can utilize this method during the period that comes after the announcement, but it cannot be applied to determine the future prices of the stocks.Practical implicationsThis study uses nine emotion indicators to capture and analyze investor emotions. We analyze text from news articles and social media posts to gather this information, just as a quantitative analyst would. Positive emotions distinctly impact asset values and the market’s response to positive news in contrast to negative emotions. Positive emotions in individuals lead to a favorable market reaction to positive news and an unfavorable market reaction to negative news. When considering the impact of different emotions on asset values, it becomes clear that certain emotions hold more sway than others. Positivity and happiness have the most significant direct and indirect impacts on asset valuation compared to other positive emotions.Social implicationsTo further explore this approach, future research might examine the impact of emotions on different financial markets, including debt and currency, as well as specific corporate operations like initial public offerings and mergers and acquisitions. Additional research is warranted to ascertain whether certain investor groups or stock types are more vulnerable to the impact of emotions. For example, future studies can study whether it had a more significant effect on small-cap stocks than large-cap businesses, value stocks compared to growth stocks, male investors versus female investors or retail investors versus institutional investors.Originality/valueOur research links returns and emotion. Investors’ emotions indirectly affect news’ impact on asset values, demonstrating a link between emotions and asset prices. The findings further research external factors influencing investors’ earnings announcement responses. Studies show that market ambiguity and information uncertainty may affect investors’ earnings surprise responses. Adding individual emotions shows how investors’ primary emotions affect their reaction to company news, specifically earnings surprises’ effects on announcement returns.