Skip to main content Accesibility Help

Do Happy People Make Optimistic Investors?

  • Guy Kaplanski (a1), Haim Levy (a2), Chris Veld (a3) and Yulia Veld-Merkoulova (a4)

Do happy people predict future risk and return differently from unhappy people, or do individuals rely only on economic facts? We survey investors on their subjective sentiment-creating factors, return and risk expectations, and investment plans. We find that noneconomic factors systematically affect return and risk expectations, where the return effect is more profound. Investment plans are also affected by noneconomic factors. Sports results and general feelings significantly affect predictions. Sufferers from seasonal affective disorder have lower return expectations in the autumn than in other seasons, supporting the winter blues hypothesis.

Corresponding author
*Corresponding author:
Hide All
Allais, M. “Le Comportement de l’Homme Rationnel Devant le Risque: Critique des Postulats et Axiomes de l’École Américaine.” Econometrica, 21 (1953), 503546.
Alvarez, R. M., and Brehm, J.. “American Ambivalence Towards Abortion Policy: Development of a Heteroskedastic Probit Model of Competing Values.” American Journal of Political Science, 39 (1995), 10551082.
Ashby, F. G.; Isen, A. M.; and Turken, A. U.. “A Neuropsychological Theory of Positive Affect and Its Influence on Cognition.” Psychological Review, 106 (1999), 529550.
Ashton, J. K.; Gerrard, B.; andHudson, R.. “Economic Impact of National Sporting Success: Evidence from the London Stock Exchange.” Applied Economics Letters, 10 (2003), 783785.
Baker, M., and Wurgler, J.. “Investor Sentiment in the Stock Market.” Journal of Economic Perspectives, 21 (2007), 129151.
Bellemaere, C.; Kröger, S.; andvan Soest, A.. “Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities.” Econometrica, 76 (2008), 815839.
Cao, M., and Wei, J.. “Stock Market Returns: A Note on Temperature Anomaly.” Journal of Banking and Finance, 29 (2005), 15591573.
Dolvin, S. D., and Pyles, M. K.. “Seasonal Affective Disorder and the Pricing of IPOs.” Review of Accounting and Finance, 6 (2007), 214228.
Dolvin, S. D.; Pyles, M. K.; andWu, Q.. “Analysts Get SAD Too: The Effect of Seasonal Affective Disorder on Stock Analysts’ Earnings Estimates.” Journal of Behavioral Finance, 10 (2009), 214225.
Dreisbach, G., and Goschke, T.. “How Positive Affect Modulates Cognitive Control: Reduced Perseveration at the Cost of Increased Distractibility.” Journal of Experimental Psychology: Learning, Memory, and Cognition, 30 (2004), 343353.
Edmans, A.; García, D.; andNorli, O.. “Sports Sentiment and Stock Returns.” Journal of Finance, 62 (2007), 19671998.
Egloff, B.; Tausch, A.; Kohlmann, C.-W.; andKrohne, H. W.. “Relationships Between Time of Day, Day of the Week, and Positive Mood: Exploring the Role of the Mood Measure.” Motivation and Emotion, 19 (1995), 99110.
Etzioni, A. “Normative-Affective Factors: Toward a New Decision-Making Model.” Journal of Economic Psychology, 9 (1988), 125150.
Goetzmann, W. N., and Zhu, N.. “Rain or Shine: Where Is the Weather Effect?” European Financial Management, 11 (2005), 559578.
Graham, J. R.; Harvey, C. R.; and Huang, H.. “Investor Competence, Trading Frequency, and Home Bias.” Management Science, 55 (2009), 10941106.
Guiso, L.; Sapienza, P.; andZingales, L.. “Trusting the Stock Market.” Journal of Finance, 63 (2008), 25572600.
Hanoch, Y. “ ‘Neither an Angel Nor an Ant’: Emotion as an Aid to Bounded Rationality.” Journal of Economic Psychology, 23 (2002), 125.
Harvey, A. C. “Estimating Regression Models with Multiplicative Heteroscedasticity.” Econometrica, 44 (1976), 461465.
Helliwell, J. F., and Wang, S.. “Weekends and Subjective Well-Being.” Social Indicators Research, 116 (2014), 389407.
Hirshleifer, D., and Shumway, T.. “Good Day Sunshine: Stock Returns and the Weather.” Journal of Finance, 58 (2003), 10091032.
Howarth, E., and Hoffman, M. S.. “A Multidimensional Approach to the Relationship between Mood and Weather.” British Journal of Psychology, 75 (1984), 1523.
Isen, A. M. “A Role for Neuropsychology in Understanding the Facilitating Influence of Positive Affect on Social Behavior and Cognitive Processes.” In The Oxford Handbook of Positive Psychology, Lopez, S. J. and Snyder, C. R., eds. New York: Oxford University Press (2011), 503518.
Johnson, E. J., and Tversky, A.. “Affect, Generalization, and the Perception of Risk.” Journal of Personality and Social Psychology, 45 (1983), 2031.
Kamstra, M. J.; Kramer, L. A.; andLevi, M. D.. “Winter Blues: A SAD Stock Market Cycle.” American Economic Review, 93 (2003), 324343.
Kamstra, M. J.; Kramer, L. A.; andLevi, M. D.. “Seasonal Variation in Treasury Returns.” Rotman School of Management Working Paper No. 1076644 (2011).
Kamstra, M.; Kramer, L. A.; andLevi, M. D.. “A Careful Re-Examination of Seasonality in International Stock Markets: Comment on Sentiment and Stock Returns.” Journal of Banking and Finance, 36 (2012), 934956.
Kamstra, M. J.; Kramer, L. A.; Levi, M. D.; andWermers, R.. “Seasonal Asset Allocation: Evidence from Mutual Fund Flows.” Working Paper, University of Maryland (2011).
Kaplanski, G., and Levy, H.. “Exploitable Predictable Irrationality: The FIFA World Cup Effect on the U.S. Stock Market.” Journal of Financial and Quantitative Analysis, 45 (2010a), 535553.
Kaplanski, G., and Levy, H.. “Sentiment and Stock Prices: The Case of Aviation Disasters.” Journal of Financial Economics, 95 (2010b), 174201.
Keller, M. C.; Fredrickson, B. L.; Ybarra, O.; Cote, S.; Johnson, K.; Mikels, J.; Conway, A.; andWager, T.. “A Warm Heart and a Clear Head.” Psychological Science, 16 (2005), 724731.
Kramer, L., and Weber, J. M.. “This Is Your Portfolio on Winter: Seasonal Affective Disorder and Risk Aversion in Financial Decision Making.” Social Psychological and Personality Science, 3 (2012), 193199.
Levy, H. Stochastic Dominance: Investment Decision-Making under Uncertainty. Amsterdam, The Netherlands: Kluwer Academic Publishers (2006).
Lo, K., and Wu, S. S.. “The Impact of Seasonal Affective Disorder on Financial Analysts and Equity Market Returns.” Working Paper, University of British Columbia (2008).
Mehra, R., and Sah, R.. “Mood Fluctuations, Projection Bias and Volatility of Equity Prices.” Journal of Economic Dynamics and Control, 26 (2002), 869887.
Mersch, P. P. A.; Middendorp, H. M.; Bouhuys, A. L.; Beersma, D. G. M.; andvan den Hoofdakker, R. H.. “Seasonal Affective Disorder and Latitude: A Review of the Literature.” Journal of Affective Disorders, 53 (1999), 3548.
Mitchell, R. L. C., and Phillips, L. H.. “The Psychological, Neurochemical and Functional Neuroanatomical Mediators of the Effects of Positive and Negative Mood on Executive Functions.” Neuropsychologia, 45 (2007), 617629.
Nygren, T. E.; Isen, A. M.; Taylor, P. J.; andDulin, J.. “The Influence of Positive Affect on the Decision Rule in Risk Situations: Focus on Outcome (and Especially Avoidance of Loss) Rather than Probability.” Organizational Behavior and Human Decision Processes, 66 (1996), 5972.
Pardo, A., and Valor, E.. “Spanish Stock Returns: Where Is the Weather Effect?” European Financial Management, 9 (2003), 117126.
Saunders, E. M. “Stock Prices and Wall Street Weather.” American Economic Review, 83 (1993), 13371345.
Scherpenzeel, A., and Das, M.. “ ‘True’ Longitudinal and Probability-Based Internet Panels.” In Social and Behavioral Research and the Internet: Advances in Applied Methods and Research Strategies, Das, M., Ester, P., and Kaczmirek, L., eds. Boca Raton, FL: Taylor and Francis (2010), 77103.
Van Rooij, M.; Lusardi, A.; andAlessie, R.. “Financial Literacy and Stock Market Participation.” Journal of Financial Economics, 101 (2011), 449472.
Veld, C., and Veld-Merkoulova, Y. V.. “The Risk Perceptions of Individual Investors.” Journal of Economic Psychology, 29 (2008), 226252.
Von Gaudecker, H.-M.; van Soest, A.; andWengström, E.. “Heterogeneity in Risky Choice Behavior in a Broad Population.” American Economic Review, 101 (2011), 664694.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed