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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.

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
    DOI: 10.1111/j.0950-0804.2005.00245.x
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