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Disentangling investor sentiment: Mood and household attitudes towards the economy

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  • Kostopoulos, Dimitrios
  • Meyer, Steffen

Abstract

In this paper, we disentangle investor sentiment into two components: mood and household attitudes towards the economy. We apply acoustical analysis to the daily top ten of music downloads in iTunes for Germany to derive a novel and direct measure for mood. We match this novel mood index with trading data of German individual investors. We find that when mood is positive, investors purchase more, particularly trading into risky and out of less-risky securities. To proxy for household attitudes towards the economy, we use an already existing index (FEARS), which bases on Google search volumes of negative economic terms. We find that FEARS drives trading in the same fashion as in previous studies and that these effects significantly depend on mood. We conclude that there are two sources of sentiment driving individual investors, which significantly interact.

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  • Kostopoulos, Dimitrios & Meyer, Steffen, 2018. "Disentangling investor sentiment: Mood and household attitudes towards the economy," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 28-78.
    • Handle: RePEc:eee:jeborg:v:155:y:2018:i:c:p:28-78
    DOI: 10.1016/j.jebo.2018.08.003
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    More about this item

    Keywords

    Individual investor; Trading behavior; Sentiment; Mood; Music; Financial markets;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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