Abstract

http://ssrn.com/abstract=1667244
 
 

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Who Believes the Hype? An Experimental Examination of how Language Affects Investor Judgments


Jeffrey Hales


Georgia Institute of Technology

Xi (Jason) Kuang


Georgia Institute of Technology - Scheller College of Business

Shankar Venkataraman


Georgia Institute of Technology

August 27, 2010


Abstract:     
This paper investigates the effect of vivid language on investor judgments. Recent research finds that investor judgments are significantly influenced by disclosure tone (positive versus negative). Holding tone constant, we investigate investors’ reactions to vivid versus pallid information. Drawing on theories from psychology, we predict that investors will be sensitive to the differences between vivid and pallid language when the underlying information is preference-inconsistent, but not when the information is preference-consistent. Results of two experiments support our prediction. Vivid language significantly influences the judgment of investors who hold contrarian positions (i.e., short investors in a bull market and long investors in a bear market). Interestingly, vivid language has limited influence on the judgment of investors who hold positions consistent with the general tenor of the market. Our results provide evidence regarding when vividness matters and when it does not in financial contexts, thereby contributing to both psychology and a growing literature on disclosure tone in financial reporting. In addition, our results also speak to concerns raised by regulators and academics asserting that vivid language can inflate bubbles and incite panics.

Number of Pages in PDF File: 50

Keywords: Language, Tone, Vividness, Investor Judgment

JEL Classification: C91, M41, D80

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Date posted: August 30, 2010  

Suggested Citation

Hales, Jeffrey and Kuang, Xi (Jason) and Venkataraman, Shankar, Who Believes the Hype? An Experimental Examination of how Language Affects Investor Judgments (August 27, 2010). Available at SSRN: http://ssrn.com/abstract=1667244 or http://dx.doi.org/10.2139/ssrn.1667244

Contact Information

Jeffrey Hales (Contact Author)
Georgia Institute of Technology ( email )
800 West Peachtree St., NW
Atlanta, GA 30308-1149
United States
404.894.3897 (Phone)
404.894.6030 (Fax)
Xi (Jason) Kuang
Georgia Institute of Technology - Scheller College of Business ( email )
800 West Peachtree St., NW
Atlanta, GA 30308-1149
United States
Shankar Venkataraman
Georgia Institute of Technology ( email )
800, West Peachtree st., NW
Atlanta, GA 30308
United States
404-385-3106 (Phone)
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References:  37
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