The Effect of Induced Mood on Prices in Asset Markets - Experimental Evidence

18 Pages Posted: 3 May 2012

See all articles by Yaron Lahav

Yaron Lahav

Ben-Gurion University of the Negev

Shireen Meer

Date Written: May 3, 2012

Abstract

In this paper we study the effect of induced positive mood on price patterns in experimental asset markets. We conduct experimental asset markets where subjects go through a mood induction procedure prior to trade. After the subjects are induced with positive affect, they can trade an experimental asset with a known stream of dividends for a known number of periods. Compared to the control (where subjects are not induced with positive affect), we first show that the mood induction procedure was successful. Then, we show when traders induced with positive mood, prices exhibit larger positive deviations from fundamental values. Finally, we show that when subjects are induced with positive mood, they bid on less units of the share, but are willing to pay higher amounts for them. Ask prices and quantities are higher when traders are induced with positive mood.

Keywords: behavioral finance, experimental asset markets, mood induction, emotions

JEL Classification: C92, D12, D81, G02, G11

Suggested Citation

Lahav, Yaron and Meer, Shireen, The Effect of Induced Mood on Prices in Asset Markets - Experimental Evidence (May 3, 2012). Available at SSRN: https://ssrn.com/abstract=2050299 or http://dx.doi.org/10.2139/ssrn.2050299

Yaron Lahav (Contact Author)

Ben-Gurion University of the Negev ( email )

Department of Business Administration
P.O. Box 653
Beer Sheva 84105, 84105
Israel
972-8-6479738 (Phone)
972-8-6477691 (Fax)

HOME PAGE: http://www.yaronlahav.com

No contact information is available for Shireen Meer

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