Emotional State and Market Behavior

CentER Discussion Paper Series No. 2013-031

34 Pages Posted: 11 Jun 2013

Date Written: June 10, 2013


We consider the relationship between the emotional state of traders and market prices. We create asset markets with the structure first studied by Smith, Suchanek and Williams (1988), which is known to generate price bubbles and crashes. We analyze participants' facial expressions with facereading software before and while the market is operating. We find that greater positive emotion in facial expressions before the market opens predicts higher prices and larger bubbles. Greater fear predicts lower prices and smaller bubbles. Those traders who remain the most neutral during periods of market volatility achieve the highest earnings. Loss aversion in decision making is correlated with fear, not with other emotions.

Keywords: Bubble, Emotions, Facereading, Face, Crash

JEL Classification: C92, G02

Suggested Citation

Breaban, Adriana and Noussair, Charles N., Emotional State and Market Behavior (June 10, 2013). CentER Discussion Paper Series No. 2013-031. Available at SSRN: https://ssrn.com/abstract=2276905 or http://dx.doi.org/10.2139/ssrn.2276905

Adriana Breaban (Contact Author)

Jaume I University ( email )

Castellon, Castellón de la Plana 12071

Charles N. Noussair

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics