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Investor emotions and market bubbles

Author

Listed:
  • Vineet Agarwal

    (Cranfield University)

  • Richard J. Taffler

    (University of Warwick)

  • Chenyang Wang

    (University of Manchester)

Abstract

Asset pricing bubbles are highly emotional market episodes. Despite this, investor emotions are not part of traditional bubble models. We measure the powerful affects influencing investor decisions during speculative market bubbles directly employing textual analysis of media narratives and domain-specific emotion keyword dictionaries and show how understanding investor emotional dynamics helps explain market behavior. Specifically, we focus on the two Chinese stock market bubbles of 2005–2008 and 2014–2016; there is no evidence of investor learning from experience. Despite Chinese media being censored we show it still has strong explanatory power although the independent English language media can provide an additional perspective. Deeper emotions dominate more superficial feelings in information content.

Suggested Citation

  • Vineet Agarwal & Richard J. Taffler & Chenyang Wang, 2025. "Investor emotions and market bubbles," Review of Quantitative Finance and Accounting, Springer, vol. 64(1), pages 339-369, January.
    • Handle: RePEc:kap:rqfnac:v:64:y:2025:i:1:d:10.1007_s11156-024-01309-w
    DOI: 10.1007/s11156-024-01309-w
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Asset pricing bubbles; Chinese stock market; Economic narratives; Investor emotions; Textual analysis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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